While money can make you rich, having a solid financial strategy is the key to true wealth and securing your future. In this blog post, we’ll help you distinguish between the two and provide ten essential steps to craft your own financial strategy for success.
The Context
Strategic thinking is about uncovering all the options and thinking long-term — Pearl Zhu
Money is sly. Building wealth is challenging, and preserving it without a game plan is even harder.
You may be correct if you believe that money can make you rich, but you are mistaken if you believe that it can also make you wealthy to secure your financial future. The terms “being rich” and “being wealthy” are usually confused to be the same but they are not. This delusion is quite common in working professionals where they get trapped in that “affluent” sensation.
It’s important to consider how you handle money when comparing the “Rich You” and “Wealthy You”. The “Rich You” could view money as a tool for making need-based purchases and supporting a particular way of life. On the other side, “Wealthy You” will see money as a way to make more money. A wealthy person will always be wealthy, as opposed to a rich person who will only be rich until their money runs out.
The path to securing your future through wealth can only be achieved by building a sound financial strategy.
Strategy in short is simply the act of planning how to do or achieve anticipated outcomes. You must be familiar with our techniques for deftly unraveling complex issues if you frequent this blog. In keeping with convention, let’s examine the process in terms of its ten handy steps.
Step 1 | Acknowledging Comfort Zone
Most salaried workers receive ongoing compensation as long as they remain employed. With a few minor financial tweaks here and there, life might occasionally continue without an incident for decades, lulling people into complacency. A person feels safe, still, and at ease when they are in their comfort zone. Stepping out of it entails taking risks and doing things that you usually are not comfortable doing.
This can involve meeting face-to-face with face your financial situation, changing your spending habits, or breaking predictable consumption patterns. Although it requires bravery and determination, this can be accomplished by maintaining a strict budget. This demands maturity to understand the concept of delayed pleasure and discipline, which is essential for navigating through this phase.
When you are financially disciplined, you can step outside of your comfort zone and make little sacrifices today for a better tomorrow. A financial discipline creates habits, habits make routines, and routines become who you are in the long run. Think about the routine as a subconscious muscle memory that navigates you to brush your teeth every morning.
Running with discipline, however, is challenging at first but gradually develops into sub-conscious memory and can be executed flawlessly. Gaining mastery over financial discipline leads to the need and development of a more sophisticated conscious action known as a financial strategy.
Step 2 | Creating A Map
The process of creating a personal road map for your financial security is called financial strategy. It works like a blueprint for plotting the coordinates of a willful expedition. Your financial goals, whether they be to buy a home, save for your children’s education, have a comfortable retirement, or take a dream trip, can be easily met if it’s backed by a strategy.
Additionally, it gets you ready for emergencies and unforeseen circumstances like being sick, losing your job, or having to remodel your home. Your finances, including your income, assets, liabilities, goals, immediate & long-term financial demands, and risk tolerance, are the main inputs for developing a financial strategy. Once you jot down these components, you quickly move on to the next stage.
Step 3 | Charting Out Goals
If you don’t have the coordinates, you can’t get where you’re going. Whether you are developing your plan yourself or hiring a registered professional, your strategy should start with a list of your goals, both big and small. It might be useful to arrange them according to when you will need the money.
Goals can be classified into three broad categories as follows:
🖱 Short Term (0-5 Years) — Goals that you want to accomplish during the next five years include paying off debt and purchasing a new vehicle.
🖱 Medium Term (5-10 Years) — Your medium-term objectives are those that you want to accomplish in the next five to ten years, including saving for a down payment on a house or opening your own business.
🖱 Long Term (10+ Years) — These are the objectives that must be accomplished in the next ten years or more, such as saving for retirement and paying for the college of one’s children.
Lay down a budget and a clear deadline for each objective. It is simpler to track your development and make progress toward your goals the more explicit they are.
Pro Tip: Simple MS Excel workbooks are wonderful tools to complete this exercise.
Although it’s advisable to begin saving money for financial objectives when you’re young, there is never a bad moment to start. Your current situation and future goals can be evaluated with the use of this financial plan.
Step 4 | Recognizing Your Net Worth
Next, you should figure out your net worth because every plan needs a baseline. Make a list of all your assets, such as your savings, money market accounts, investments, and real estate. Make a separate list of all your debts (credit cards, loans).
Your net worth then is the sum of your assets minus your obligations. If it turns out to be negative, don’t give up. Young professionals frequently experience this, especially if their financial life is just getting started.
Your starting point will be the final sum.
Step 5 | Cash Flow & The Budget
From a planning viewpoint, summarising your budget is where the real actionable magic begins. Budgeting assists you in figuring out where your money is going and where you can make cuts to better reach your goals.
Making a detailed list of every rupee can help guarantee that you don’t forget about sporadic but significant payments like house loans, rent, appliance upkeep, out-of-pocket medical expenses, and taxes.
Make a list of your spending and divide it into two categories: “Necessities” (like groceries and rent) and “Extras” (like dining out and gym memberships). You can also use simple budget-tracking apps like ET Money to keep track of your spending.
You could wish to pressure-test your budget by exploring “what if” scenarios while determining how your goals fit into it:
- What happens if you need or want to retire sooner?
- What if you reduced the size of your mortgage? etc.
Step 6 | Managing Debt
In Asian culture, debt is typically seen as a bad omen, however, not all debt is bad debt. For instance, a home loan can help you increase your equity, save on taxes, and improve your reputation in the banking industry for better interest rate bargains.
On the other hand, high-interest consumer debt from credit cards hurts your credit score. In addition, every rupee you spend on loan fees and interest is money you can’t use for other objectives. If you have debt with a high interest rate, be sure to put together a strategy to assist you to pay it off as quickly as you can. This contributes to boosting confidence when making riskier investing bets. If you’re unsure of where to start, a qualified financial advisor can help you prioritize your goals and figure out how much of your monthly budget should be allocated to paying off your debts.
Step 7 | A Retirement Plan
Planning for retirement enables you to save enough money to maintain your present standard of living. 80 percent of your current income is what experts estimate you’ll need for your retirement years.
However, this is presuming that you have paid off your debts, that you won’t have to pay any taxes or expenses related to your job once you retire, and that your children will be self-sufficient. Also, it’s critical to remember that not all medical expenses are covered by health insurance and that costs for long-term care and other non-medicare-related medical bills can add up quickly.
In retirement, you might also spend more on extras like vacations, eating out, presents, or helping out a friend or relative financially. You can determine what you would require in retirement by incorporating various situations into your retirement plan.
Step 8 | Provision For Emergency Funds
A reserve for emergencies can save you from having to dip into your long-term savings in times of need, such as when you lose your job or receive an unexpected medical cost. In general, it’s a good idea to set aside money for at least three months‘ worth of necessities (e.g., groceries, housing, transportation, and utilities), but ideally, six months is considered a safer bet.
Save this cash in a bank or savings account with high liquidity so you may quickly access it if necessary. This ensures a peaceful night’s sleep and enhances your aptitude for making wise decisions in life and also in the domain of personal finance.
Step 9 | Optimal Insurance Coverage
Insurance is a crucial component of preventing financial disaster, but you shouldn’t overpay for coverage you don’t require. To cover a variety of variables, think about various insurance options. For instance life insurance, health insurance, disability insurance, vehicle insurance, and house insurance.
In doubtful situations, it’s always better to work with a credible insurance agent to determine the kind, combination, and amount of coverage that is most appropriate for you.
Step 10 | Estate Plan
This is an important and concluding aspect of building a personal financial strategy. You should at the very least have a legal will, which outlines your ultimate desires regarding your property, dependents, and the person you want to handle your financial affairs when you are gone.
Further, you should keep your beneficiaries for retirement funds and insurance plans up to date. Do think about appointing powers of attorney to handle your finances and medical care if you become incapacitated. Consider consulting with an estate lawyer or a certified financial planner if you need assistance getting started or achieving more complicated estate-planning variables.
You may click/tap here to read the article we highly recommend on this subject.
Conclusion
All of this may appear overwhelming at first, but the best way to accomplish significant financial goals in life is to divide them into more manageable chunks. You must take the time to outline a potential difficulty and identify specific components to construct a sequential plan and handle it while developing your financial strategy.
You can therefore better understand how broad the financial issues might be and what methods to implement for quick wins by dismantling distinct sections and potential remedies to each financial complication. This is the end of the how-to manual that is designed to provide you with the knowledge to build a winning financial strategy.
We hope you enjoyed reading this article.”While money can make you rich, having a solid financial strategy is the key to true wealth and securing your future. In this blog post, we’ll help you distinguish between the two and provide ten essential steps to craft your own financial strategy for success.”
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