A life without dreams is unimaginable. After all, these dreams are the ones that motivate and push you to get going. Travelling around the globe, giving the best education to your children, living a peaceful retirement life, and buying a home, could be some of the items on your bucket list. To tick off the items on that list, you require money. It is for this reason that financial planning plays an important role in our lives.
Financial planning is not only for the rich. A good plan will go a long way in ensuring your financial security and giving you a stress-free life. Without a robust plan, you may end up spending more than you should, leaving you with little savings for a rainy day. To enjoy a financially independent life, you need to set financial goals. These goals will ensure that you stay on track and save yourself from any financial troubles.
Here is how you can set financial goals for yourself:
Create a budget
Budgeting is an important task in assessing your expenses. Once you start budgeting your monthly expenses, you can reduce spending on unnecessary items. An effective way to budget is to categorize it under different labels like food, commute, bills, shopping, entertainment etc. Each item should have an estimated budget allocated to it. Of course, you must not spend all that you earn. Stick to this budget and you will learn how to live within your means.
Create an emergency fund
An emergency never comes with a warning. Not having enough funds to combat the emergency will only add to your woes. Prepare yourself for such situations by creating an emergency fund. Everyone wants to protect their loved ones if something were to happen to them. It means buying insurance to cover your life and that of your family. Without insurance, any financial plan will go down the drain if an emergency were to strike.
Pay off your debts
You may have taken a loan for buying a vehicle, real estate or a big-ticket purchase. Make it a priority to clear these loans. The interest only keeps increasing and it further affects your financial planning. Try not using a credit card for impulsive purchases. Credit cards lure you into buying things that you don’t really need and you end up overspending. It is a vicious cycle where one can be stuck in the payment cycles. If you have a number of debts, list them as per the interest rates. Pay off the debt that has the highest interest rate first.
Save for your dreams
A life with no achievement goals can become dull and boring. Fulfilling your dreams can give us that proud feeling of accomplishment. Have dreams and dream big if you like. Create a separate fund to realize those dreams. These can be short-term like going on a vacation abroad or mid-term like renovating your house. It could also be long-term like creating a healthy retirement fund. Put aside some cash every month for this purpose.
Create a retirement fund
With no pension or a steady source of income, retirement life can become difficult. Start investing in a retirement fund now instead of becoming a burden on your family later. There are various retirement funds available in the market and your financial planner can help you in picking the right one. You may argue that your current responsibilities don’t leave any room to add to this fund. However, it is better to compromise today instead of spending your golden years in financial discord.
Grow your money
Compounding is a powerful tool in growing your money. Many people do not realize it until their later years. Unfortunately, it is too late by then. Invest your savings to grow and build a reserve over time. Invest in stock markets if that interests you. Don’t worry if you do not have the understanding or are averse to the risk. Several financial products that are available in the current market will help you to avoid risks. Invest in mutual funds through a systematic investment plan (SIP). A dedicated monthly savings plan will also inculcate a savings discipline in you.
Create an alternative source of income
It may seem impossible but try to think of an alternate income source. Like investing in a side business or freelance assignment. This will protect you if you were to lose your job. It can also enable early retirement.
Financial security is your best bet to lead a happy life. Creating these goals and sticking to them will ensure this. You current bills may make it difficult to stick to these goals. However, remember that being consistent is the key. Over time, you will learn to live on less and you will realize that it isn’t so difficult.