Unless you come up with a formal plan, it could be daunting to achieve a financial aim, be it for your business or for personal purposes. Therefore, deciding the financial goal isn’t the prime factor. It’s more about determining how you accomplish it and stick to the plan you drafted.
To make it easier for you, we have highlighted some of the basics of financial planning that will enable you to establish a financial plan with tangible steps that you will be able to take.
Identify the Goals
This simply comes down to answering a simple question- What’s your financial strategy? You need to determine what exactly you need your finances for, and what strategies will be required to achieve those objectives. Once you identify your goals, you can create a plan about getting there.
If you plan to completely clear your debt, you will have to calculate all your debts and figure out how much money you need to clear them off, also taking the time factor into consideration. If you decide to have financial planning for your business, you need to give a lot into consideration such as -from where you are going to get funds, how you are going to manage the cash flow and how are you going to manage your finances while your business is up and running?
Once you establish your desired goals, you will have to simply work out the ways to achieve your goals.
But you won’t be able to do so until you make a concrete plan, and that is why creating a plan has to be the priority of any business.
Set a Realistic Budget
Whether you’re aiming for retirement at some point in the future or to start a business of your own, you will require extra money to turn your dream into a reality.
That is why creating a realistic budget is imperative. A large number of people avoid this, and that’s a prime reason why people fail to achieve any significant financial objectives.
A budget helps you to figure out how much funds you spend compared to the money you earn monthly. It will also help you figure out where you are spending excessively and where you can make savings, enabling you to put the money where it needs to be put.
Many people assume that making a budget adds extra stress, but in reality, it does exact opposite in the long run, especially if you are planning to start your own business.
Budgeting is one of the most crucial financial tools for any small-business owner.
Cut Unnecessary Expenses
After setting a realistic budget, you’ll know where exactly your funds are going, and you will be ideally positioned to prioritise and redirect your money in the right direction. You can begin by identifying the expenses that are necessary. These are the items that ought to be paid such as your debt payments or taxes.
The next group can be those important expenses over which you can exert better control. It may include utilities, or expenses associated with work. They might be important, but you can cut such expenses to some extent. The third group is pure optional expenses, which includes holidays, and shopping. These may be desirable, but are not at all necessary.
Post putting expenses in respective groups, you’ll be in a better position to save. For instance, you can cut down your important expenses, but can completely get rid of more than one of your optional expenses.
So, making these reductions releases cash flow that can be directed into savings for your business or for paying off your debts.
Create a Back-up Fund
After identifying considerable expense reductions from your budget, the very next step is to have a back-up fund for emergencies. This step is usually ignored amongst other goals, yet this is completely a must-have for your financial stability.
A back-up fund can be created by alternative finances. It is imperative when you have a plan for a start-up of your own. A number of alternative finances are available for business such as Invoice finance, cash flow finance etc. provided by P2P business providers (they even cater their services online, so it’s easy to get in touch with them). The idea behind having cash flow finance is that you have ample funds to be stable financially when an unforeseen expense rolls up, or a cash flow problem occurs in your business. This not only enables you to tackle a short-term finance problem, but also helps you skip the situation of borrowing money from Banks who charge heavy interest rates.
Be Debt Free
Once you establish a back-up fund, the very next step for you to take will be clearing off all your debts. Cash flow that you created into your budget by cutting expenses and the back-up funds that you sought, can be redirected for paying off of debts.
There are various strategies for being debt-free but it is best to initiate by targeting the smaller debts, and paying them off. As soon as the smaller debts are cleared, you can target the large debts. This type of debt payoff strategy has a number of advantages, such as:
- Every single debt that gets paid off represents a moral victory, no matter how small it is.
- Every single debt gets cleared, removes a monthly basis payment and increases the cash flow, which can be used to clear the next debt.
- When you clear off the largest debt you have, you will have the ability to clear it off since all the debts and their monthly basis payments are already cleared.
Save For Other Goals
There are a lot of other reasons for saving money for the future. If you have children, then saving for their education can be an example. Also, you can consider saving money for purchasing a new car or for refurbishing your home or office.
The major purpose behind saving for intermediary goals is imperative as you can have enough money for your predictable expenses. It is also important for avoiding a situation of being in debt while paying for them.
Debt cycle is something that many people get stuck in, having a tough time to get out of it. Therefore, Prevention is a lucrative strategy which involves saving money for things coming up in the near future.
Have Required Insurance
It’s always likely that you might be faced with emergency expenditures and it’s apparent that you can’t save enough money. This is the whole purpose behind having insurance. There are numerous insurance coverage, such as – life insurance, homeowner’s insurance, auto insurance, business insurance, etc.
The most unobserved benefit that insurance offers is that it provides protection to your assets. This is a reason why insurance is deemed as a fundamental element of smart and effective financial planning.
Here is an instance of it- homeowner insurances enable you to repair your house if its damaged from some natural catastrophes without you taking help from any other resources. Business insurance does almost the same by paying claims that you cannot cover.
Once you realise that insurance protects your assets, you get that it’s a critical element of your financial plan.
Keep these basics in mind while drafting a financial plan for yourself or for your business and you will reach your future goals without any monetary obstacle.
Like Saving Advice? Subscribe!
Subscribe to get the latest Saving Advice content via email.