Personal financial planning is a crucial aspect of life that helps individuals manage their money effectively, achieve their financial goals, and build a secure financial future. With the constant changes in the economic landscape, it is essential to constantly review and update your financial planning strategies to ensure that you are on track to reach your financial goals.
In this article, we will list the six best personal financial planning strategies for 2023, supported by statistics. These strategies will help you to effectively manage your money, save for the future, and make informed financial decisions.
1. Create a Budget
Creating a budget is the first step toward effective financial planning. It helps you to track your income and expenses, identify areas of overspending, and make adjustments to your spending habits. A survey conducted by the National Foundation for Credit Counseling (NFCC), found that 61% of respondents who created a budget reported an improvement in their financial situation.
To create a budget, start by listing your income sources and all your monthly expenses, including bills, groceries, entertainment, and debt payments. Subtract your expenses from your income to determine your net income. If your net income is positive, allocate it towards saving and investing for the future. If it is negative, identify areas of overspending and make adjustments to your budget.
2. Save for Emergencies
Emergencies can arise at any time, and it is essential to have an emergency fund in place to cover unexpected expenses. The Federal Reserve’s Report on the Economic Well-Being of U.S. Households reports that only 39% of adults have enough savings to cover a $400 emergency expense.
To save for emergencies, aim to have a savings account with at least three to six months’ worth of living expenses. This will ensure that you have a financial cushion in case of a job loss, medical emergency, or other unexpected expenses.
3. Pay off Debt
Debt can be a significant financial burden, especially if it is high-interest debt such as credit card debt. The average credit card interest rate is around 16%, which means that if you carry a balance of $5,000, you will pay around $800 in interest in a year. That is money down the drain.
To pay off debt, start by creating a debt repayment plan. List all your debts, including the interest rate, balance, and minimum monthly payment. Prioritize paying off high-interest debt first and consider consolidating your debt to a lower-interest loan or credit card. As you pay down high-interest debt, you can roll those payments into your lower-interest debt. This can help you to rapidly eliminate your debt.
4. Save for retirement
Retirement may seem far off, but it is essential to start saving for it as early as possible to take advantage of compound interest. According to the Employee Benefit Research Institute (EBRI), only 44% of workers feel confident that they will have enough money to retire comfortably.
To save for retirement, start by contributing to a 401(k) or IRA account. If your employer offers a matching contribution, make sure to contribute at least the minimum amount to receive the full match. You can also consider saving in a taxable investment account or a high-yield savings account.
5. Protect your assets
Protecting your assets is an essential aspect of financial planning, as it ensures that you have financial security in case of unforeseen events. Research from the Insurance Information Institute (III) reveals that only 56% of Americans have life insurance, and only 41% have disability insurance.
To protect your assets, consider getting insurance coverage for your home, car, health, and life. It is also essential to create a will and designate beneficiaries for your assets. In the event that something catastrophic happens that disrupts your livelihood or destroys your assets, you will be protected.
6. Consider a side hustle
A side hustle is a part-time job or business venture that provides additional income. According to a survey by Bankrate, around 44% of Americans have a side hustle to supplement their primary income. By adding a side hustle to your financial plan, you can increase your income and have more money to put toward your financial goals.
7. Seek financial advice
Seeking financial advice from a professional can be an important aspect of personal financial planning. A financial advisor can help you develop a personalized financial plan that takes into account your individual financial situation and goals. Only 20% of Americans work with a financial advisor. Financial advisors are fantastic assets that can help you manage your finances and achieve your financial goals.
Picking the Best Personal Financial Planning Strategies
Personal financial planning is essential for managing your money effectively and achieving your financial goals. By setting a budget, reducing debt, saving for emergencies, considering a side hustle, and seeking financial advice, you can improve your financial situation and secure a financially stable future. Choose a few strategies that make sense for your personal goals and start actively implementing them in the new year, 2023, so you can take control of your finances and make progress toward your financial goals.
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