The Green Sheet Online Edition

April 08, 2024 • Issue 24:04:01

What smart financial planning looks like now

By Chad Otar
Lending Valley

Wherever you are in your payments career, financial planning will help you meet your life goals. However, to do that, you need an effective strategy. This article offers you a step-by-step- guide to smart financial planning:

1. Conduct a financial health checkup: You need a baseline, so determining your net worth is your first step.Make a list of your assets (real estate, valuable items, bank accounts) and debts (loans, credit cards, etc.). Subtract your debts from your assets to find out your net worth. Don’t get upset if you end up in the negatives. That's normal for those who are just starting their financial journey. Repeat this checkup at least once a year to keep an eye on your dynamics.
2. Set financial goals: A plan requires that you know what you want to spend your money on. To boost your motivation, make a list of your short-term, medium-term, and long-term goals. Short-term goals can be achieved from a few months to five years. Examples include buying a new car, paying off certain types of debt, taking a vacation or renovating your home.

   Medium-term goals can be achieved from five to 10 years. Examples include starting your own business, saving for a down payment on a house. Long-term goals can be reached in 10 or more years. These include saving for retirement, saving for a child's college education, or becoming debt free.

   Determine an exact sum and a target date for each goal. The more specific your goals are, the easier it will be to track your progress.

3. Master the art of budgeting: Track all of your expenses for at least a month. This will help you find out where your money is going and where you can cut back. Then, aim to set aside at least 20 percent of what you earn each month. If that’s unattainable right now, find ways to trim your expenses (cancel unnecessary subscriptions, insulate your house, start meal planning, etc.).
4. Tackle high-interest debt: A big portion of what you save each month should go toward paying off high-interest debt. Private student loans, personal loans and credit cards tend to have the highest rates that often divert funds from your milestones.
5. Build an emergency fund: Another portion of your savings should go toward a reserve fund to cover from three to six months' worth of living expenses. Such a financial pillow will help you feel more confident and prevent stress if times get rough.
6. Plan for retirement: If you have a 401(k), gradually expand your contributions toward the basic IRS limit ($23,000 in 2024). An IRA is a tax-advantaged investment account with a $7,000 contribution limit in 2024. You can contribute to both a 401(k) and an IRA to build retirement savings.
7. Plan your taxes: Learn about taxes to take control of your future. Here are just a few things you can do: contribute to a retirement account up to the full dollar amount permissible, which will reduce the amount of income subject to tax; take advantage of tax-free gifts; and remember about government incentives offered.
8. Get insured: Shop around to find the best life, health, homeowner and car insurance. All these financial safety nets will help you recover if something harmful happens.
9. Map things out for your loved ones: Have a will, and keep the beneficiaries of your retirement accounts and insurance policies up-to-date. Without these measures, you cannot be sure that your assets will be distributed according to your wishes.

Smart financial planning doesn’t have to be complicated and it enables you to accomplish your life goals without making big sacrifices. Make a plan, stick to it, track your progress, and make necessary adjustments as you go.  

Note: I referred to the following in researching this article:

• www.experian.com/blogs/ask-experian/how-to-set-smart-financial-goals/
• www.irs.gov/retirement-plans/401k-plans
• www.irs.gov/retirement-plans/individual-retirement-arrangements-iras 
• www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes

Chad Otar is CEO of Lending Valley Inc. For information about the company, please visit www.lendingvalley.com. To reach Chad, send an email to chad@lendingvalley.com.

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