For many, the idea of having a strict budget or a more holistic ‘financial plan’ comes across as intimidating and restrictive. While it is essential to make some sacrifices to achieve your goals, a financial plan doesn’t have to be a daunting prospect. Planning your finances essentially means thinking about where you want your financial future to head, or at least having some essential awareness around your financial future. The extent of your financial plan can be varied – maybe it’s immediate, a budget for the next month, thoughts about your future income, or the investments you’re currently pursuing. Either way, the goal is to manage your money better and successfully reach the desired financial outcomes.
What should you include in your financial plan?
A financial plan is essentially a birds-eye view of your financial position and future goals. An excellent plan will also detail the steps you need to take to achieve those goals. When formulating your financial plan, you should include (at a minimum):
- Your income
- Your savings
- Any debt you carry
- Any assets or investments you own
- Your regular expenses (e.g. rent, transport, groceries, eating out, entertainment)
- Superannuation and government benefits
It’s also important to take into account your current situation. For example, many of us have been impacted by the COVID-19 pandemic. Our finances have taken hits in many places while benefiting elsewhere. Most importantly, there has been an increase in uncertainty about the future. Despite all this, a financial plan is still useful, perhaps more useful than ever – with some adjustments! Instead of trying to predict your situation fifteen or twenty years from now, focus on the next one or two. Smaller financial goals are okay too, just be realistic and focus on what you can control.
The importance of a financial plan
Having a financial plan is essential to developing a realistic assessment of your current situation. Without knowing your starting point as well as your future goals, it’s much harder to connect the two. Some good examples of a future financial goal may include setting an age to retire, buying a vehicle, purchasing your first home or achieving a certain level of savings and investments.
A financial plan can actually be incredibly motivational. Instead of driving blind, you now have a defined path to follow. Set a giant, long-term goal that excites you. Striving to reach the top of the mountain will keep you on track to hit your shorter-term goals along the way. Having a financial plan has a few critical benefits, including:
- A solid understanding of your needs and wants. What do you currently have, what do you want in the future, and how will you get there?
- A mix of short, medium and long-term goals breaks more extended periods into achievable steps.
- You know how an adverse event might impact your financial position. For example, a job loss might not be such a big deal if you’re on top of your savings.
Formulating a plan isn’t the most challenging part. Sticking to it and achieving your goals is. Tools such as Earned Wage Access (EWA) help you flexibly access your earned wages, making budgeting and meeting unexpected expenses so much easier. If you’d like your company to help your financial wellbeing and workplace performance by enabling flexible real-time access to your earned wages, contact Paytime today to arrange a free consultation.