Personal financial planning might sound intimidating, but it’s something every adult can and should tackle. No matter your age or income, personal financial planning can help you to understand where your finances are today, where you want them to be in the future, and what you need to do to achieve those goals. Depending on your personal goals, financial planning can help you to increase savings, reduce debt, start an emergency fund, prepare for major purchases like a house or vehicle, plan for further education for you or your children, and even pay less in taxes by claiming available deductions and credits. In this post, we cover the basics of what financial planning includes and how you can get started.
DIY Financial Planning: Taking the First Steps to Improve Your Finances
“Financial planning is important for everybody, but this doesn’t mean you have to run out to a professional planner,” says Dr. Anthony Matias, DBA, MBA, CPA, South University Accounting Program Director and Associate Professor in the College of Business. “You can do it yourself, especially with the internet providing access to so many websites that can support you.”
To learn the basics, Matias recommends finding a good book on the topic and supplementing it with online research and resources from financial institutions. “Walk into a bookstore or your local library and start looking through the shelves on finance and financial planning. That’s one of the best ways to get an orientation,” he advises. To help you along, we’ve compiled three of the first actions everyone should take as they set out to create a personal financial plan.
1. Setting Goals: Before you start a plan, you’ll want to get clear on your goals and priorities. You may have thought about these goals generally before, but it’s time to write them down and order them by importance. Think about short-term goals that you’d like to accomplish this year, medium-term goals that you’d like to see happen within the next 5 to 10 years, and long-term goals that you imagine for yourself 10 years or more into the future.
2. Assessing Your Current State: One way to examine your current finances is to determine your net worth, which is your total assets minus your debts. To calculate this, add up all of your bank accounts, any investments (including retirement and college savings plans), and the value of any real estate, automobiles and other high-dollar items you own. Then subtract from your total assets the total debt from credit cards, student loans, a mortgage or any other loans. The resulting number is your financial net worth. Getting a negative number is not uncommon, so don’t panic if your result is below zero. Whatever number you get is simply information – a starting point from which you can move forward and grow. You can continue to check back on this number and use it as a benchmark to track financial progress over time.
3. Budgeting: Creating and following a budget is an excellent short-term goal that can lead to progress on your medium- and long-term goals. To make a budget, you’ll need to know what comes into your accounts, what goes out, and where it goes. Review your pay summaries, bank statements, bills and any cash income or expenses. From there, you can find manystrategies and tools that will help you to use this information to create a realistic budget for your needs. Over time, you should work to reduce recurring expenses and nonessential spending so that you can allocate more income toward your financial goals. (If you’re not already doing it, one quick win is to automate bill payments to avoid late fees. Many financial experts also promote paying yourself first, in which you always put part of your paycheck into savings or investments before allocating money toward monthly expenses.)
Deciding What Comes Next
What you do after determining your goals, assessing your net worth and building a budget will vary based on your personal priorities and situation. For example, if you have high-interest loans or credit card debt, you may want to focus on paying that down. For others, it might be time to build savings, open a retirement account or confirm that you have the right insurance to protect yourself and your family. Planning for taxes is another area to consider, including learning about deductions and credits that might apply to you. (Tip: bookmark these sites for the IRS’ annual tax guides for individuals and for small businesses.)
After completing your initial research and financial planning steps, if you’d like outside help beyond what’s available online, you can also reach out to a professional. “If you do seek advice, it is very important that you get someone who is licensed to do that and has adequate professional certifications. For example, look for the CFP designation, which stands for Certified Financial Planner,” Matias suggests. Of course, any time a South University student wants to discuss their financial aid and school payment plans, their Student Finance Counselor is also here to help.
If you enjoy learning about finance or like the idea of helping other people manage their finances, a career in business or accounting might be right for you. Contact South University today to learn about preparing to pursue a career in these fields.