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This article was co-written by Andrew Lokenauth. Andrew Lokenauth is a financier with over 15 years of experience working on Wall Street and in startups & technology. Andrew helps management convert financial resources into viable business decisions. He has worked at Gpdman Sachs, Citi and JPMorgan Asset Management. He is the founder of Fluent in Finance – a resource company that helps customers increase their financial resources, understand the importance of investing, make a good budget, plan for repayment, build a vacation schedule. retirement and personal investment planning. Many magazines such as Forbes, TIME, Business Insider, Nasdaq, Yahoo Finance, BankRate and US News have republished his expertise. Andrew holds a bachelor’s degree in Business Administration, Accounting and Finance from Pace University.
There are 14 references cited in this article that you can view at the bottom of the page.
This article has been viewed 6,349 times.
A financial advisor can help you plan for a specific goal like retirement or investing. They can also give you advice on many other financial matters such as taxes, savings, insurance, etc. [1] X Trusted Source US Securities and Exchange Commission Go to the source Although hiring a private professional It’s always wise to get financial advice before making complex decisions, but learning how to do financial planning will not only help you understand and manage your personal finances, but it will also save you some money. Fees payable to specialists.
Steps
Set financial goals
- You can search the internet for forms that help you define financial goals. [3] X Trusted Source US Department of Labor Go to Source
- For example, you don’t have any savings right now, and your goal is to save more. Setting a goal of setting aside 5% of your monthly income for savings is not only specific, but measurable (you can easily tell if you’ve reached it), and achievable over a reasonable period of time. .
- Write down your goals. Not only will this help you remember, but it will also hold you accountable. A good plan should include short, medium and long term goals.
- For example, a common financial goal is to plan for retirement when you are 60 or 65 years old. While it is generally assumed that 70-80% of current income is a reasonable target for retirement income, others see 50-60% of married income and 60-60% of income. 70% of single people’s income is more reasonable. [4] X Research Sources
- For example, in the US, if your current annual income is $80,000, and you’re unmarried, your retirement income could be around $40,000 per year, based on the 50% figure in the US. above. Here’s an example of translating a goal (retirement at age 65) into a specific amount ($50,000 per year). Once you know this number, you can create a plan to determine how much money you need to save and/or invest to supplement other sources of retirement income to reach $50,000 per year.
- You can find forms online to help calculate needs for retirement and other goals. [5] X Trusted Source US Department of Labor Go to Source
Determine your current financial situation
- Start by creating two columns, one credit and one debit.
- Next to each type of property, write the value of that property. For example, if you own a home, enter the value of the house next door. The same applies to other asset classes, such as stocks or cars.
- Add all of the above values to find your total net worth.
- Add up all of the above to find your total debt.
Calculate monthly budget
- You can list variable expenses that occur over a multi-month period, add them all up, and divide them evenly by the number of months. The result will be the average number of variable expenses that you can factor into your monthly budget.
- If you don’t know your exact income and/or expenses, you’ll need to follow up for several months to get the numbers.
- Regularly review and update the budget. Remember to add new expenses and delete items that are no longer spent.
Save money
- Consider the budget to do this. Look at your monthly expenses and find unnecessary expenses that can be cut. For example, if you eat at a restaurant three times a month, or buy lunch from work every day, now you should decide to eat at the restaurant only once a month, or bring lunch from home to work.
- Look at the budget and decide what is “want” and what is “need”. Target “want” items to save. Likewise, look at the items you consider “necessary” and ask yourself if they are really necessary. For example, a mobile phone is necessary, but you may not need the 3GB plan, but only the 1GB plan.
- Save an amount that you feel comfortable with, that suits your needs and spending. Your savings may increase (or decrease) over time. It’s important to have something to spare, even if it’s just a small amount.
- Ten percent of your income is a good place to start, but you can save as much as you want, less is better than nothing. [11] X Research Source
- Even a small amount of money saved in an interest-bearing account (checking account, savings account, deposit account, etc.) benefits from compound interest – that is, the amount of interest on the original capital will be added. add to the capital and then continue to earn interest, and so on – increasing the total value of the account. [12] X Trusted Source US Department of Labor Go to source
- Practice a lot and you will get used to it. As you set aside a certain amount of money every month or adopt the “pay yourself first” method, gradually everything becomes automatic, and you will learn to live without your savings as if you didn’t have any. It. Treat your savings as a necessary expense like rent or an installment payment.
- You can also protect yourself from financial troubles by getting the right insurance. If you have questions about landlord/tenant insurance, health insurance, life insurance, unemployment insurance, disability insurance or auto insurance, please talk to your agent. related reason. [14] X Trusted Source US Department of Labor Go to Source
- In the US, for example, your 401(k) retirement account can be boosted by your employer contributing an additional amount equal to the amount you put in. Similarly, anyone can open an individual retirement account (IRA) and enjoy tax benefits. [15] X Trusted Source US Department of Labor Go to source
Financial investment
- Popular investment sectors include stocks, mutual funds, bonds, real estate, and commodities. [17] X Trusted Source Investor.gov Go to Source
- Each type of investment has different profit potential, costs and risks.
- You can put your money into a variety of investments (such as bonds, stocks, and mutual funds) through banks, brokers, and sometimes directly through companies, governments, or municipalities.
- Many forms of investment are now tradable entirely online, but there are many investment brokers that you can consult face-to-face. However, in-person consultation fees will probably be higher than transactions you make yourself online.
- Stocks represent ownership in a company. When you buy a stock, you buy a piece of the business, and the value of that part goes up or down depending on how many people want to buy or sell. For that reason, stocks can be extremely volatile, and while stocks generally outperform any other type of investment (average annual return of 8% since 1029), They can also depreciate terribly in a year. In 2008, US stocks fell by 50%. Stocks are a good choice for long-term investors, such as those preparing for retirement.
- Bonds are a form of debt investment. When you lend money to the government or company, you buy bonds. In return, you will receive interest on the money you lend, usually paid annually or semi-annually. Usually bonds are less risky than stocks.
- A mutual fund is a collection of investments (usually stocks), managed by a professional investor. When you buy a fund, you buy ownership in a basket of stocks, and whether you make or lose money depends on how the underlying basket performs. Mutual funds are a good choice for passive investors, as you’ll benefit from multiple sources of diversification, and thanks to a professional manager who buys, sells, and manages a portfolio based on what’s going on. market conditions and their strategies. However, you have to pay a fee.
- Review your goals to decide to take a risk. For example, if you are saving for 6 months for a vacation, then investing in stocks is probably a bad decision, as stocks are risky and can fluctuate greatly over time. time. This means you may have a chance to hit your savings goal quickly with a small amount of money to spare, but there’s also the chance that you’ll have to postpone your vacation because your investments are losing money. much. In this case it might be better to invest in (less risky) bonds, or even just keep the money in a high-yield savings account.
- A general rule of thumb is that the higher the potential return, the higher the risk – which also means that the lower the risk, the lower the potential return. [18] X Trusted Source USA.GOV Go to Source
- Relatively “safe” investments include savings accounts and US Treasuries. [19] X Trusted Source USA.GOV Go to Source Stocks offer higher returns but also higher risks. Mutual funds reduce risk by investing in a wide range of stocks and securities and can be a good choice for long-term investments.
- Never invest money that you need in the short term or spend it on essentials like food, rent, or gas.
- Investing in stocks is appropriate if you have a moderate to high risk tolerance and plan to save for the long term. For example, if you’re saving for retirement, it’s worth thinking about buying stocks. Remember that not every stock has a high level of risk. For example, investing in a small pharmaceutical company (not recommended) can be extremely risky, while investing in large companies with stable cash flow and competitive in the market like Wal- Mart, Wells Fargo, or Coca-Cpa may be less risky.
- If you don’t have the time, comfort, or risk tolerance to buy individual stocks, you should consider mutual funds. This type of investment is suitable for medium- and long-term goals like retirement or saving for your children’s education, but is more “passive”, and you usually only need to check every year or semi-annually. to make sure your investments work the way you want them to. You can do your own research on mutual funds and investments through an online broker or visit a bank or financial advisor to choose from. [20] X Research Sources
- Bonds are suitable for individuals with a low risk tolerance who are interested in preserving their savings while growing at a low but steady rate. It is important to note that bonds are included in any portfolio, and it is generally advised that people in their 20s to 40s invest in larger stocks and mutual funds, while those in their 20s and 40s are generally advised to invest in stocks and larger mutual funds. near retirement should switch to bonds to preserve savings. Bonds can be an effective way to balance a portfolio and reduce risk. A good rule of thumb is to subtract your age from 100, and that’s the percentage you should keep in the stock. [21] X Research Source
- For example, a plan for retirement can span many types of investments, including mutual funds, stocks, and savings accounts. In this case, a mutual fund for a long-term goal can cover the loss if individual stocks invested in retirement plans depreciate. The money kept in a savings account, although low interest, is guaranteed and can be taken out easily when needed.
Focus on the right financial decisions
- Stop and take some time to think before making any decisions. Don’t let sales people, brokers, etc. put pressure on you. Tell them (and yourself) that you need time to think.
- Ask about costs (taxes, fees, security, etc.) and risks. Make sure to know what the worst possible scenario is.
- Verify all information for accuracy and reliability.
- Estimate the cost of that decision and think about whether it fits your budget.
- Decide if you think it makes sense.
- Do not abuse credit cards. Try to spend only what you earn.
- Pay off high-interest debt as soon as possible. This can be the best tactic for long-term financial growth, as even good investments often aren’t enough to pay off high-interest debt.
- If you have multiple credit accounts, you should try to prioritize the account with the highest interest rate first.
- Beware of advice, investments, etc. that lack credibility. If an offer sounds too good to be true, it most likely is. [26] X Research Source
Advice
- The laws, regulations, and procedures related to financial planning can vary widely, depending on where you live and/or work. You must know that information well before making financial decisions, and consult a professional if there is anything you do not understand.
This article was co-written by Andrew Lokenauth. Andrew Lokenauth is a financier with over 15 years of experience working on Wall Street and in startups & technology. Andrew helps management convert financial resources into viable business decisions. He has worked at Gpdman Sachs, Citi and JPMorgan Asset Management. He is the founder of Fluent in Finance – a resource company that helps customers increase their financial resources, understand the importance of investing, make a good budget, plan for repayment, build a vacation schedule. retirement and personal investment planning. Many magazines such as Forbes, TIME, Business Insider, Nasdaq, Yahoo Finance, BankRate and US News have republished his expertise. Andrew holds a bachelor’s degree in Business Administration, Accounting and Finance from Pace University.
There are 14 references cited in this article that you can view at the bottom of the page.
This article has been viewed 6,349 times.
A financial advisor can help you plan for a specific goal like retirement or investing. They can also give you advice on many other financial matters such as taxes, savings, insurance, etc. [1] X Trusted Source US Securities and Exchange Commission Go to the source Although hiring a private professional It’s always wise to get financial advice before making complex decisions, but learning how to do financial planning will not only help you understand and manage your personal finances, but it will also save you some money. Fees payable to specialists.
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