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Most people don’t plan to fail they just fail to plan. Everybody needs a financial plan.
It is important for individuals and families to have a monthly budget and a long-term financial plan in place. The world of money is so crazy-complex in the 21st century that proper financial planning and money management should be a top priority for everyone. Here I am not talking about just wealthy individuals and families. At a minimum, proper financial planning means that people at all levels of society and income should track their spending, budget, prioritize financial goals, plan for the worst (have an emergency fund), and save—especially for retirement.
Take a typical family for example. Their spending may not be excessive, but their spending is coming up short month after month because they don’t know where their money is going. They could either carry around a little notebook and a pen and jot down their spending on a day-to-day basis or at the end of the day at home run a simple spreadsheet in Excel where they track their daily expenses. At the end of the month I bet you anything that they would see at least three or four areas where they could cut back their spending or eliminate them entirely. And this goes into budgeting, where you know your income and then you can see your monthly expenses. This way you can have a financial plan or the beginnings of it at a minimum because now, just like with a garden, you will know your soil and your area of planting and therefore can plan for growth and what exactly is it that you want to plant.
The subject can be explored extensively and one could write a book about it, which I’m not going to do. But, one thing that needs to be mentioned is that part of a prudent financial plan one needs to “plan for the worst.” This means having an emergency fund that is equal to 3 to 6 months of one’s income at a minimum. With the economy as it is nowadays I would recommend to my clients of having 9 to 12 months of income available to them as cash or cash equivalents.
A lot of individuals don’t have a disability or life insurance. In a family situation both of these forms of insurance are of vital importance. A lot of parent gloss over this key part of their financial picture and it can be a huge mistake. Since you have dependents you must think about what will happen if you become disabled due to an accident or in a worst-case scenario: lose your life.
It is well know that Americans are the worst savers in the world. Buying on credit is okay but it needs to be kept in check. Saving for future expenses and goals is important and as part of that savings plan one should prioritize. With families, for example, there are future college expenses to consider as well as retirement. People also want to acquire property, buy a new car and save up for a family vacation. Just as you would parcel up a garden one should create “buckets” of savings and contribute a percentage of their monthly income to those buckets in priority of importance.
These are just some of the basics of responsible and prudent financial planning.