Take Control of Spending by Creating a Financial Plan
Do you ever look at your checking account balance and wonder where your money has gone? Or perhaps you want to buy a house, but the goal seems unattainable? If you feel out of control of your finances or as though you aren't reaching your financial goals, it's time to manage your money by creating a financial plan.
Why You Need a Plan
A financial plan provides you with a road map to save more, reduce your debt, and afford the things you want. It also helps to keep you organized. With multiple bills competing for your attention, it's hard to remember where each dollar needs to go and how much you intended to save. It's helpful to gather all of that information in one place for you to refer to whenever you want.
Once you have a solid plan, you can feel confident that you're spending and saving in a way that aligns with your priorities.
Components of a Financial Plan
Although the details will differ depending on your specific financial goals and other factors, your plan should probably include a few main ingredients. First things first, schedule a financial wellness review to get a better understanding of where you currently stand and where you'd like to be. Write down your goals. Do you want to save money for a down payment, pay off a credit card, or buy a new car? Thinking about your goals helps to pin down what matters most to you and personalize your plan.
If you don't have an emergency fund yet, start one. Having cash on hand for emergencies means you won't have to divert money from your other goals when you face an unexpected expense. If you already have an emergency fund, you can contribute to your retirement savings or save up for a big purchase.
Paying off debts is another important component of a good financial strategy. Make sure you're setting aside money to pay the minimum on each of your debts. If you can afford to, make larger payments toward the account with the highest interest rate.
Finally, decide how you're going to spend your money. Be purposeful about your spending. Look at each category of your budget and think about whether your purchases are going toward things you really need. Are there opportunities to cut costs? You may find that money you're spending would be better used to pursue a goal or to grow your nest egg. With all of the components of your plan in place, create a monthly budget that outlines how you intend to save, spend, pay off debt, and achieve your goals.
Sticking to It
To make sure you stick to the goals you've outlined, take steps to set yourself up for success. Track your progress once a month: Review your account statements and see if you're on track to reach your goals. You'll feel a sense of pride as you add to your savings or pay down debt, and you'll be motivated to continue. Ask a trusted financial advisor for guidance; getting another set of eyes on your plan can help you spot potential pitfalls and come up with solutions.
Set up automatic bill pay or an automatic monthly transfer to pay off debt, and sign up for bank notifications to help avoid overdrafts. Automatic savings programs, such as KeyBank's EasyUp® program, transfers $1 from your checking account to your savings account each time you use your debit card. This allows you to grow your savings as you spend.
Having a good plan can help you manage your finances into the long term. But as your circumstances change, your plan might need to change as well. Review your financial plan at least a couple of times each year to ensure that it's still working for you.