ÐÔÊÀ½ç´«Ã½

Financial planning is about making the most of your money. Creating a financial plan helps ensure that your goals in life and the money you’ve earned and saved are working together to help you achieve what you want today and in the future. So how do you create a financial plan? There are a few key components: spending, saving, and long-term planning.

Ìý

Spend on what you really want

Budgets are often negatively associated with limitations. But budgeting is not really about limits. It’s more about making sure you can spend on what’s really important to you. It’s taking a long-term view on your money, so you have enough left after your day-to-day expenses to put toward goals, purchase items, or have experiences that you truly care about.

If you believe you can save more or you struggle to pay for special-occasion spending like birthday parties or vacations, you can start your financial plan by looking at your spending habits.ÌýÌý

If you do most of your banking online and use credit cards or other digital payment systems for most expenses, then the process of collecting all your spending information is relatively straightforward. All the spending activity is already recorded. All you need to do is organize it into buckets.

The first bucket covers fixed monthly expenses, like housing, food, gas, insurance, tuition payments, which are a priority. The second holds lower-priority items such as entertainment, dining out, streaming video services, or various subscription services.

Some people categorize their spending by going through each expense item with a highlighter, color-coded for each category. Others prefer spreadsheets. Regardless of what method you use, looking at all your expenses allows you to see where your money is going—and what you might want to adjust.

Save for what’s important to you

Saving is the next pillar in a financial plan. Start with near-term goals, which are anticipated expenses within the next three years. Estimate the costs of upcoming celebrations, a new car, or home improvements. Then start putting money toward those goals on a regular basis. Saving large sums, like $10,000, can feel more manageable if the goal is broken down into monthly contributions. Over three years, you could reach that goal by saving $278 a month.

Another important savings goal is to have an emergency fund. Starting or growing an emergency fund provides a cushion for unexpected expenses, like car repairs or medical bills. You should ultimately aim to save three to six months’ worth of expenses. That way you won’t have to dip into your other savings when these bills pop up.Ìý

Plan for long-term goals

Lastly, create room for long-term goals in your financial plan. Long-term goals can be anything a decade or more out. Retirement is likely your biggest goal, but it also could be saving for a home or helping your children pay for college.Ìý

Just like with near-term goals, estimate how much money you need to achieve your long-term goals. With long-term goals, you have a longer time to save and make your money work for you. Investing can maximize your savings efforts, thanks to the power of compound growth—and the sooner you start saving, the bigger the benefit.

Annuities also may play a role in helping you and your loved ones reach their long-term goals. Annuities grow your savings tax-deferred and can help provide protected lifetime income and a beneficiary benefit to protect your loved ones. There are different types of annuities—some allow you to invest in the market, while others offer a fixed rate of return not tied to the market’s ups and downs. A financial professional can help you determine which kind is best for your needs.

Financial planning is about having a plan for your money so that you can meet your financial needs today and achieve your long-term goals. Having a financial plan that takes into consideration your spending, saving, and future helps you gain a better understanding of what steps you need to take to get to the future you envision.