Financial planning is one of the keys to long-term financial stability. You may think you need to hire a professional financial planner to help you get your finances in order and ensure long-term financial comfort.
However, there are many steps you can take on your own to become financially comfortable. Continue reading to learn more tips for being your own financial planner.
Track Your Spending
Financial planning requires you to set aside money for certain purposes. The only way to do that effectively is to have a clear idea of what your expenses actually are. Budgeting software can help you track each of your expenses, as well as how you spend your extra money currently.
That information can help you make financial planning adjustments and increase your long-term savings. Many budgeting apps are free or have free versions you can use to get started, including the PocketGuard app.
Reduce Your Debts
If financial stability is your end goal, reducing your debts may be the first step to take. Credit card debts can be particularly bothersome. Develop a plan to get rid of your credit card debt as quickly as possible by taking steps like:
- Paying off the card with the lowest balance
- Paying off the card with the highest interest rate
- Increasing your monthly payments as much as you comfortably can
You may also have other debts you need to pay, such as medical bills or student loans. If so, one popular strategy is to focus on paying the debt with the lowest balance first to eliminate one ongoing bill entirely.
You can also get other debt payment advice from a trained counselor. Several nonprofit organizations offer free or low-cost debt counseling services you can use.
Create a Plan for Funding Your Retirement
Planning for retirement is often an essential part of the financial planning process. One common step is to open a retirement account called an IRA. There are two types of retirement IRA accounts available: traditional accounts and Roth IRAs.
After you open a Roth IRA, you are taxed when you contribute to it, but you are not taxed when you collect the funds after retirement. A traditional IRA works in reverse, with the taxes being applied at the time of collection instead of when you make contributions to it.
Another way you can fund your retirement is by making careful investments throughout your adult life. Low-risk investments like mutual funds, index funds and exchange-traded funds are preferable.
Those types of funds are provided through many different investors. They are used to invest in assets like bonds and stocks. Investing in such funds creates portfolio diversity and increases the odds of profiting in the long run.