No matter your age, planning for how you'll achieve your goals — big or small — is one of the keys to success
You likely have plenty of goals for your money — from paying off your student loans to one day enjoying retirement. What may be missing is a path for getting there. That's where financial planning comes in, a process that involves getting a handle on your financial life, setting goals and working to reach them.
"The exercise of planning gives you a path to follow, and if you have a goal and make a plan for reaching it, you're more likely to end up with a better outcome," says Christopher Vale, senior digital director, Financial Wellness Client Experience at Bank of America. It's easy to put off financial planning. After all, it can be hard to find the time, or you may think it's only for people who have a lot of money. Yet as Vale notes, "everyone can benefit from having some sort of plan."
A simple six-step guide to getting started
Creating a plan to reach your goals may feel daunting, but the process doesn't have to be a big undertaking. You can address your financial goals bit by bit, Vale notes, and "anything you do is better than nothing." Use this road map to get going:
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The first step is taking stock of what you own (savings, retirement accounts, etc.), what you owe and what your budget looks like. Tracking your income and expenses with a tool like the
Cash Flow Calculator can help you figure out how much you can afford to put toward your goals. "If you don't understand where the money is coming from and how you are spending it, it's going to be hard to be intentional about where you want that money to go," Vale says. "People who don't have a plan tend to just spend what they have."
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2. Figure out what you have to fund your goals
With a budget in hand, you can not only determine what you can afford to put toward your goals but also figure out what adjustments you may need to make to free up more cash to save. Vale suggests using the "
50/30/20 rule (PDF)," in which 50% of your spending goes toward necessities, 30% goes toward wants and 20% goes toward financial goals.
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3. Identify your goals, big and small
You may want to start with a single goal — like building an emergency fund or paying off high-rate debt — or set multiple goals that might include buying a home, funding education or saving for retirement. Once you establish your objectives, categorize your goals as short-, medium- or long-term and large vs. small, and attach numbers to each so you know what you're aiming for. Tools like the
Merrill Personal Retirement Calculator and
College Planning Calculator can help. These figures don't have to be exact. For long-term goals, especially, you'll likely start out with ballpark figures you'll refine over time.
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4. Decide which goals to tackle first
Since financial goals vary, implementing a financial plan will be different for everyone. If you are working toward multiple goals at once — which most people are —
prioritizing them can help you juggle. Your priorities should reflect both the time horizon of your goals and how essential they are to your overall financial well-being. Knowing the time frame for meeting each of your goals can help you determine if you should
save for the near term or invest for potential long-term growth.
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5. Create a system to stay on track
To stick to your plan, consider trying one or more of these tips, suggests Miguel Ronquillo, financial solutions advisor at Merrill.
- Break your road map into manageable steps
- Make savings automatic
- Track your progress
- Build in accountability by sharing your goals and the steps you're taking with friends, family or a financial professional
- Project how your savings or debt repayments could add up over time, which can be reassuring or point you to where you need to adjust. "Painting a picture of the future can be a motivator," Ronquillo says.
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Keep in mind you may have to change your plan as your personal and financial situation changes. Revisit your plan and check on your progress regularly — at least once a year. "Life changes should trigger a review," Ronquillo says. "If you get married or divorced, have a child or change your job, that will change your planning." That's why having a road map — and being ready to pivot — is key to success.
And the payoff can go beyond the financial. "With a plan," Vale adds, "you gain more confidence, you can sleep more soundly at night and you feel better about the future."