If you’ve ever thought about financial planning, you’ve probably asked yourself what exactly constitutes the three elements of financial planning. It can seem tricky to distill something as multifaceted and complex as financial planning into three different categories, but it becomes easier once you think about them from an investor’s perspective. The three elements of financial planning are security, savings, and strategy, and each one of them will benefit your investments in different ways. Three Elements of Financial Planning: Security Savings and Strategy
Security
*Financial security is achieved by having a robust emergency fund that can cover at least six months’ worth of living expenses. This will protect you from sudden changes in the economy or job loss. *Retirement planning should also be a top priority for financial security. Start saving early to meet your retirement goals, no matter what type of plan you choose. Three Elements of Financial Planning: Security Savings and Strategy
Savings
The first element is savings. This includes three key components: emergency savings, retirement savings, and education savings.
Emergency savings should account for at least six months of living expenses. This means that if you have a $500 monthly budget for living expenses, you should have at least $6k in emergency funds.
Strategy
Financial planning is an integral component in any individual’s life. It’s important to identify the 3 key components of financial planning.
The first component is security. This refers to how much money you need on a monthly basis to cover your living expenses while maintaining a comfortable lifestyle.
The second component is savings. This refers to how much money you need on a monthly basis so that you can have it saved in case an emergency arises or if retirement becomes less than comfortable.
Personal Security
It’s important to have a sense of personal security. This could mean having insurance coverage for your family in case an emergency happens. It could also mean building up an emergency fund so you’re prepared in case something unexpected comes up. Personal security is also about knowing that you’ll be able to live comfortably and pay the bills every month even if you lose your job or run into some other type of financial difficulty.
Personal Savings
In order to have financial security in the future, it’s important to start saving now. Not only will it give you a feeling of accomplishment as your savings account grows, but you’ll also be prepared for any unexpected expenses that might come up. To get started with your savings plan, consider setting aside a small amount from each paycheck into a rainy day fund.
Financial Strategy
It’s always wise to have a strategy in place. In the case of financial planning, this means knowing what you want to achieve with your finances. What are your goals? Is it more important to maximize savings or minimize taxes? Do you need life insurance? Some financial experts recommend having three different types of plans in place: 1) emergency funds; 2) retirement; 3) other savings goals.