When it comes to personal finances, the single most common suggestion that experts give is to start your financial planning early. But a lot of people get confused about planning their finances. If you are a young earner and have yet to figure out your finances, then the starting out process can be overwhelming.
Here are some easy ways to simplify your financial planning process;
1. Figure out your financial goals
Your financial goals will be at the center of your financial planning. All your financial decisions will revolve around these goals. Financial goals are subjective and can vary from person to person.
Most people have some fixed goals like retirement savings, healthcare, emergency funds, etc. But others like repaying debt, saving for weddings/vacations/big purchases, etc. can also be a part of your financial goals.
Setting sensible, achievable, and long-term financial goals is very crucial in your personal finance. This will allow you to make conscious efforts to direct your money towards certain goals rather than spending them mindlessly.
You can do this easily with Kuvera goal based investment plans. Set your desired goal, invest a small amount every month to achieve your goal.
2. Organize your financial planning
Organizing all your financial information is a very important step to make your financial planning simple and easy to access. You should have a financial planning document that has all the necessary information that you need to make sound financial decisions.
This will include your gross and net income, your monthly expenses, your debts, your financial goals, your investments, and a couple of financial strategies that you use to achieve your desired goals.
This document should have an entire overview of your finances. This should also contain vital information related to tax returns.
3. Make a budget
Everyone knows that having a budget is one of the most important steps to sorting out your finances. But even then most people don’t make and follow a budget religiously.
A budget can be a part of your financial planning document. You can even try out multiple budgets for a few months until you find the one that works best for you. A budget will allow you to have a clear overview of your finances and evaluate your finances better.
To make a simple budget you need:
- All your priority bills and expenses like rent, electricity, food, etc.
- Then you need to keep aside your investments, savings, emergency funds, etc.
- All your miscellaneous expenses
- Finally, all your expenses that can be categorized as wants like clothes, vacations, weekend expenses, etc.
The key is to aside all of your priority expenses as soon as it hits your account. This way you will be less tempted to spend it. The best way to do this is to automate your bills and priority expenses.
4. Review your expenses
Having a budget and following it will also give you a clear overview of your expenses. Even the people who follow their budget regularly, review their expenses once a month.
Ideally, along with a detailed review of your expenses every month, you should also have a quick look at your weekly expenses before the weekend. This will also give you an idea about how much you should spend during the upcoming weekend.
5. Financial analysis
Financial planning and analysis go hand in hand. Once you are done reviewing your expenses, it’s time to analyze your finances. This entails you looking at all the wise and not so wise financial decisions that you have taken in the week or month and planning your future expenses accordingly.
It also helps to note down in points all the good and bad decisions every time you analyze your finances. After a few months, you will have a repository of your financial behavior.
You will also be able to notice patterns of both good and bad financial behaviors and can take steps accordingly. Doing this regularly will help build good financial habits and cut down on bad ones.
Financial planning can seem difficult and tiresome in the beginning but it will get easier over time with practice. The sooner you get started, the sooner you will be able to figure out what works and doesn’t work for you. The most important step is to analyze if your financial behaviors are in accordance with your goals.
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