A financial plan is like a roadmap for your money — without one, it's hard to know where your money's going or where it'll end up. That's why it's important to have a financial plan for every stage of your life. You can create one that meets your specific short- and long-term goals, then update it along the way as life happens.
If you don't know where to start, don't worry. A personal financial counselor can help at no cost to you. Once you have a financial plan, just stick to it and enjoy the path to financial freedom.
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What's a financial plan?
The specifics of your financial plan will vary depending on your situation, but the basic concept is pretty universal: a financial plan evaluates your current financial state, sets goals for your future and makes a concrete plan for financial freedom.
What goes into a financial plan?
As you start creating your plan, consider how your financial needs will change through each phase of your life.
Meeting your current needs. Think about your current income and expenses. Before you can start planning for the future, make sure your current needs are met. Create and follow a spending plan you can stick to by adding up your current expenses and seeing how much money you can expect to have left over.
Addressing your existing debts. If you have credit card debt or loans, your financial plan should address how to pay them off as soon as possible to avoid paying any more interest than necessary. From your spending plan, figure out how much more of your income you can use to pay off your debts each month. Here are some tips for paying down your debt:
- Determine what kind of debt you have. Is your debt "good debt" or "bad debt?" Knowing which is which can help you figure out what needs to be paid down first.
- Never miss a payment. And always pay at least the minimum balance due each month.
- Work on paying down one credit card at a time. Start with the one that has the highest interest rate.
- Consolidate student loans. Combining your student loans into one loan can make it easier to manage the payments each month.
Creating security for later. Think about what the future holds for you and your family, and ask yourself: What kind of financial cushion will we need to face life’s milestones? Here are a few tips for saving for life’s possibilities:
- Building an emergency fund. Financial advisors usually recommend saving 3 to 6 months of living expenses in case of an emergency. If you're currently deployed, you may want to look into the Department of Defense Savings Deposit Program and earn 10 percent interest on your savings.
- Saving for college. If you think paying for college for yourself or your children is in the future, you may want to look into different plans for financing a college education, such as a 529 plan.
- Saving for retirement. Although it might be hard to imagine now, saving for retirement is one of the most important ways you can secure your financial future. Service members and federal employees can take advantage of the Thrift Savings Plan to grow their retirement funds. You can also look into opening a separate traditional or Roth IRA for your own personal account.
- Investing for growth. You have many different investment choices if you want to grow your personal fortune. Ideally, your investments will be low risk and have a high return, so think carefully before investing. You may want to explore your options with the help of a personal financial counselor.
Strategies for sticking to your new financial plan
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Concerned about sticking to your financial plan? Try these strategies.
- Make it automatic as much as possible. Automated savings drafts or credit card payments can help keep you on track for your goals.
- Write it down. Putting your goals in writing can remind you what you're working toward when things get tough.
- Find opportunities to save. Did your grandmother give you a big check for your birthday? Was your year-end bonus more than you expected? That's great — now use those opportunities to build your savings.
- Be patient. Getting out of debt and saving money takes time. Don't expect major financial changes to happen overnight.
Get on the right track
You can find plenty of resources to get you on the right financial track. Visit a personal financial manager on your installation, or check out Military OneSource’s no-cost personal financial counselors to start managing your money more effectively today.