Today’s guest post comes from Patricia Sanders. She outlines some helpful tips for successfully managing your finances. You can check out more of her work on wiki.debtcc.com where she is a regular contributor.
Successful financial planning: What you should or shouldn’t do
Do you want to stay on top of your finances? Are you upset with your financial progress? If so, then the first thing you need to do is create a financial plan and stick to it. You’ll get tons of tips on how to create a financial plan from different personal finance websites and blogs. So, I’m not going to talk about that. Rather, I will discuss the 12 dos and don’ts of financial planning to help you attain your goals.
- Create a spending plan since it will help you differentiate between your wants and needs. It will help you get a grip on your finances. Give special emphasis on your needs instead of your wants.
- Create a backup plan. If your plan A doesn’t work, you can use the plan B. There is no guarantee that plan A will definitely work.
- Divide your plan into 2 categories – (i) short-term financial goals (ii) long-term financial goals. Short-term financial goals should include family vacations, creating an emergency fund and paying off debts. Long-term financial goals must include your retirement plans.
- Create an emergency fund to stay on track even when an unexpected expense comes up. This unexpected expense may come in the form of medical debt, car repair or anything else. Try to create an emergency fund that contains 3-6 months’ expenses.
- Build your nest-egg since no one will look after you after retirement. It would be impractical to depend on your kids since no can predict the future.
- Pay your credit card bills every month. If you don’t, then credit card companies may increase the interest-rate. Plus, you may have to pay fines and late fees.
Your credit-utilization ratio drops when you pay your bills on time and reduce your debt. This makes a positive impact on your credit score. The ideal credit-utilization ratio is 30%.
- Check if you’re properly covered. Find out if you’re overpaying on your auto and home insurance. Evaluate all your insurance policies and check if you’re sufficiently covered. If you’re the only bread earner of the family, then it’s important to buy death and disability insurance. As per the Council for Disability Awareness, there is a 25% chance for the employers to become disabled at some point in life.
- Save money for your kids’ education. Higher education is costly. I wish your kids qualify for scholarships and grants. But there is no 100% guarantee that your kids will qualify for scholarships. So why should you take risks? Open a 529 savings account as soon as possible.
- Don’t ignore your credit score. If you do, then be prepared to pay high-interest rate on your loans. If your credit score is too low, lenders may reject your loan application. Check your credit report once in 3 months so that you can find out if there are errors or incorrect information. If there are inaccurate negative listings, dispute them with the credit reporting agencies. You can get a free copy of your credit report from www.annualcreditreport.com.
- Don’t ignore your tax. Consult a tax planner to know about the deductions you can claim. File your tax within the deadline. An unpaid tax lien stays on credit report indefinitely.
- Don’t give more importance to your wants rather than your needs. Prioritize on your needs instead of your wants. Track your expenses and find out if you’re spending more on your wants. For instance, if you’re not saving enough money in your retirement savings account, then skip those expensive family vacations. This would help you attain your retirement goals. Create a budget to discover where you’re spending money.
- Don’t get emotional when you’re investing money. Be practical and patient. When the markets are volatile, don’t try to get out of the market. Sit quietly and wait till the market becomes stable. Don’t make hasty financial moves based on the rumors and news.
Evaluate your financial plan once in every 3 months. If you aren’t sure, then consult an experienced financial adviser. He can help you set realistic goals and get back on track.