No matter your age, finances play an essential role in your life. In order to maintain a certain lifestyle, you need money coming in and expenses going out — and if you don’t keep things balanced, your finances can get out of control fast. If you’re concerned about your financial future or want to learn more about personal finance topics, this guide will provide you with all the components of financial planning that everyone should know. The 7 Components of Financial Planning That Everyone Should Know
1) Create a Budget
In order to create a budget, it is important to understand what your income and expenses are. Your income could be money coming in from work, a side hustle, or even alimony. Expenses are all the costs you have each month such as food, housing, and utilities. When figuring out what your monthly net income is you need to subtract all of your expenses from your total income. The 7 Components of Financial Planning That Everyone Should Know
2) Create An Emergency Fund
An emergency fund is designed to cover your expenses in the event you lose your job or have an unexpected medical bill. It’s important to have this fund stocked and ready for use. You can start small by saving up a few hundred dollars, but it’s recommended that you save at least 3-6 months worth of income.
3) Look for Low-Cost Ways to Reduce Your Debt
One way to reduce your debt and start saving money is to use a cash back credit card. For example, the Capital One® Quicksilver® Cash Rewards Credit Card offers 1.5% cash back on every purchase, plus a $150 bonus after you spend $500 on purchases within the first 3 months from account opening. You will also earn unlimited 2% cash back on every purchase made at any store that carries the Visa or Mastercard logo, along with 1% cash back on all other purchases.
4) Get Health Insurance
Health insurance is the first component, and perhaps the most important. Health insurance provides coverage for medical expenses and will protect you from financial ruin in case an unexpected illness or injury leaves you unable to work.
5) Start Investing
Investing is the process of acquiring shares in a company or property, with the expectation that the value will increase over time. As an investor, you could either be an active or passive one. Active investors are constantly looking for new investment opportunities while passive investors simply focus on investing in what they know and understand, without any need to research on a regular basis.
6) Have an Estate Plan in Place
An estate plan should be made up of a will, a power of attorney, and a living will. The plan should also have provisions that provide for the care and custody of minor children in the event that both parents die. To ensure that your assets are distributed as you intend them to be, it is important to consult with an attorney who specializes in this type of law.
7) Review, Renew and Revise your Plans Regularly
Many people make the mistake of only making their financial plans once, and then not revisiting them for years. This is a huge mistake that can have disastrous consequences in the event of an emergency or if your situation changes. It’s important to review, renew and revise your plans regularly so you’re prepared for any changes to your life.