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Financial Planning Basics

Creating a financial plan can seem overwhelming if you’ve never made one before. So get started with these financial planning basics.

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1. Budget

A budget is the building block for everything else. By keeping track of what you earn and what you spend your money on, you get a complete picture of your financial situation and can easily identify areas for improvement. If you’re unsure where to start, try a budgeting tool like this, or if you’re more tech-savvy and prefer to use Excel or Google Sheets -these will work better for you. For more information on creating a budget, check out our previous post.

Budget spreadsheet on laptop

2. Emergency Fund

Life is unpredictable. Having an emergency fund helps protect you from life’s uncertainties. Start by defining a monthly savings goal and set up automatic transfers into a dedicated savings account. You’ll save money without realizing it. Your emergency fund may fluctuate as your financial position evolves, so revisit your budget to be sure you’re prepared. Typically, financial advisors suggest having $1,000 readily accessible and at least three to six months’ worth of funds available for emergencies. Starting small, you can build an emergency fund regardless of your financial situation.

3. Retirement Money

A 401(k) is an employer-sponsored retirement plan. You fund this account with a part of your paycheck. An employer may match your 401(k) contributions up to a specific threshold. The IRS caps 401(k) contributions, but company matching is not included. However, total contributions, including employer matching, have a larger yearly cap. Financial advisors can answer all your 401(k) questions. If you work for a company that offers a 401(k) or other retirement planning, take advantage of it. At a minimum, try to maximize any employer matching they offer. If you don’t have a company-sponsored retirement plan, speak with a financial advisor about other retirement planning options, such as an IRA or a Roth IRA. We offer more suggestions to help you save for retirement, too.

Man and Woman Sitting on Wooden Dock during Sunset


4. Insurance

Insurance helps defray costs when unexpected things happen. Your unique circumstances, such as dependents, age, and lifestyle, will determine the kind and quantity of insurance you should purchase, but you’ll want to consider the following types of insurance: health, auto, home (or renters), life, and long-term care insurance.

5. Will and Other Legal Directives

Your will provides plans for your estate after your passing. It may also include Trusts or other financial programs. In creating your will, you may also want to set up a healthcare directive and financial power-of-attorney so it’s clear who can make decisions on your behalf if you’re unable to do so.

How many of these financial planning basics do you have covered?

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