Coming up with a financial plan may seem daunting for someone who has no interest in finance. However, it is vital that we still attempt to build a financial plan that can see us through retirement and help us achieve all our financial goals.
With this in mind, I thought it might be useful to pen down three important steps to come up with a robust financial plan.
Step 1: Set your financial goals
The first step to any financial plan is knowing the goals you wish to achieve.
For example, a young couple could set a goal to save up for a home down payment and have enough monthly earnings to pay for a mortgage. At the same time, they could also be looking to set aside money for their retirement.
Knowing what goals you want to strive for is the first and most vital step of coming up with a financial plan.
Step 2: Take stock
The next step of the process is assessing your financial situation. We must be self-aware of our earning capacity and current financial health. This also involves taking into account all our monthly expense requirements and any debt that we may have incurred along the way.
By assessing our financial well-being, can we decide how much we can save a month and what investments we should be looking at.
Step 3: Manage your resources
The final step of the process involves learning to manage the resources that you are left with.
To help you to achieve your monthly savings goal, you can use a budget calculator and see if you can save as much as you wish through your current expenses and lifestyle.
Next, we should allocate our resources to investments that meet our financial goals. Investors have to decide which investment option best suits their risk appetite and financial goals by learning the pros and cons of each asset class. A good strategy is to diversify your portfolio across multiple asset classes.
Another option that Singaporeans may wish to consider is to add more money to their Central Provident Fund Special Account, which can accrue interest of up to 5%.
The Foolish bottom line
A financial plan is vital in ensuring that we each have enough for the future and in cases of exigencies. Having said that, financial plans should also be dynamic and flexible, as we have to react to unforeseen circumstances or even positive changes, such as an increase in income. Hopefully, these three steps can provide us with the backbone of creating a good financial plan to suit our individual needs.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.