From the moment you have your life goals set and you start working towards them, there’s a very important factor that must be a part of your goals as well: Financial planning.
Financial planning is all about making the best possible use of your resources, while also turning your funds into further profitable income for yourself and your family in the long run. Right from your possibilities for an income source aka your career, to keeping money aside as savings and then choosing the right avenues to invest it in, financial planning is a detailed process on its own. Good investments can make a positive change for your present and future financial security, and ensure that you never run short of funds for your needs.
The below infographic explains what goes into the different stages of financial planning and why each stage is important:
First, you must understand the different stages of financial planning.
Stage One: Education
The first stage involves your higher education, which involves expenses like university tuition fees. Student loans and 529 savings plans are the best options for a student, but he/she must do a thorough survey of the current market and pick the most suitable one. You have to be clear about what academic course you wish to pursue because this stage lays the foundation for your future career path.
Stage Two: Employment
The second stage is when you secure a job or become an entrepreneur. This is now your main source of income that will fund your living and expenditure. This is ideally the best time to start keeping savings aside because your volume of responsibility is considerably low.
Stage Three: Marriage
The third stage is when you get married, and your responsibilities increase subsequently. This is when you need to start considering health, medical insurance and also consider going for a home loan and/or motor vehicle loan. The assets you build on in this stage of your life are investments that support a comfortable and convenient lifestyle.
Stage Four: Parenting
The fourth stage is when your responsibilities are at a maximum; this is when you become a parent. You want to provide your children a comfortable and fulfilling life. This includes paying for all their needs. This may include funding their basic education and keeping aside money for further studies. These are all important steps. As a parent, it’s a smart move to start browsing through 529 plans for their future endeavors.
Up until college, your main responsibility is to make sure that your children are secure enough to pick a study course of their choice and move on to build a career path for themselves.
Stage Five: Retirement
Once your children are secure, it’s time for you to shift the focus on yourself and your upcoming retirement phase. For retirement, the most important thing to remember is that your source of income will diminish considerably. This means that all your savings and investments will be most helpful at this stage. Ideally, you need to consider investing into retirement schemes. Investing in Roth IRAs and 401K at an earlier stage can have a big impact. Time allows them to mature sufficiently by the time you retire and can give you a good rate of return.
Insuring your assets is also a smart move so that they can be protected in case of any unforeseen accidents or damages. This saves you a lot of unnecessary expenditure. There are a lot of competitive insurance policies available in the market that provide great policies for affordable premium rates.
Finally, making an estate plan is essential, so that your assets and earnings are appropriated correctly. This is much more advantageous than a simple will because it allows you to avoid a lot of taxation and also distribute your assets as per your choice.
Adam Neil works for Financial Planning Platform a financial services firm in Rancho Cucamonga, California. Experts can give you a structured approach to your financial habits. A financial advisor can help you lead a better class of lifestyle.