The importance of a financial plan
A ‘financial plan’ sounds daunting, don’t worry it doesn’t need to be.
When we say financial plan all we really mean is a plan or some awareness of the direction you want your finances to go in. This financial plan can be short term, mid-term or long term and it should help you control your income, expenses and investments so you can manage your money and achieve your goals.
What is a financial plan?
A financial plan is a big picture view of your finances, your financial goals and any to-do’s you’ve got to do to achieve these goals.
When starting a financial plan it should include:
- Income
- Savings
- Debt
- Investments
- Insurance
- Pensions
Why is a financial plan important?
A financial plan gives you an overview of your current financial situation in detail. A good financial plan starts with your financial goals, then you work out what your money can do for you to help you achieve those goals.
Examples of financial goals:
Buying a house
Retiring early
Buying a car
Hitting a savings or investment goal
Financial goals should be a little inspirational giving you something to aim for in 5, 10 or 20 years time. Keeping your goals inspirational will help you complete the next steps in your financial plan and importantly keep you motivated and positive throughout your journey.
How you can build a financial plan in a pandemic
The last 12 months have been strange, to say the least, and our finances have been affected in lots of different ways. Despite the challenges faced a financial plan can still be useful during these unprecedented times, we just need to move the goalposts.
Instead of thinking in 5, 10, 15 years, we might need to think in terms of 1,2,3 years. The financial goals might also change they can be smaller but just as important things like, how can I pay off my debt, how can I save at least £250 or how can I get out of my overdraft.
What are the benefits of having a financial plan?
- It helps you understand what you want and what you have
2. It breaks your targets and milestones in smaller more manageable steps
3. It helps you absorb bad news. By this, we mean you know how bad news like a broken-down car, or a job loss will affect you financially hopefully making it less anxiety-inducing.
How to create a solid financial plan in 5 simple steps
1. Set goals
3. Track every little bit of money and direct it towards your saving goals
4. Think about your pension.
Read the six things you need to know about pensions here
5. Tackle your debt
Read our blog on how to get help with debt here
6. Invest your money to build your savings
Read our beginners guide for investing here and look out for our webinar all about investing in March.