As the new year approaches, many people tend to set New Year’s resolutions. Some are realistic and some are less so. The most common financial goal is to save more. I believe there’s more to financial planning than just increasing our savings. Setting financial goals can help us figure out where we want to be moneywise and what our priorities are.
When it comes to setting goals, it helps to be specific, realistic, and to write them down. You’ll likely have a mixture of short-term, medium-term, and long-term goals. Here are 7 steps to help you create a financial plan.
- Start an emergency fund
An emergency fund is crucial to your financial plan. It helps deal with those unexpected costs like if you suddenly lose your job. You want to make sure you are prepared for the worst (*coughs* COVID). Build up an emergency fund of 3-6+ months of your monthly expenses to provide you with a safety net.
- Pay off your debts
As Muslims, we are told to stay away from debt. However, if you do find yourself in any debt, it’s best to get rid of it as soon as you can. Debt is your biggest hindrance when it comes to achieving your financial goals.
- Create a savings & investment plan
Savings help you with your short-to-medium term goals. Setting aside money for these goals will help you achieve them faster. If you want to build long-term wealth, that’s where an investment plan comes in. Allocate a certain percentage towards your investments. Having a basic understanding of what you are investing for, when you’ll need the money, and what your risk tolerance is, will help to create your investment plan.
- Create a retirement plan
Retirement may seem far away (or it could be round the corner). Either way, set up a retirement plan, taking inflation into consideration, to help you work out how much you will need to save and invest for when the time comes.
- Plan for taxes
Taxes are something often overlooked when planning finances. Not factoring them into long-term projections can drastically impact your cash flow. Have a look into tax-saving investment accounts like an Investment ISA and you may just find that you save a big chunk of cash in the long run. Speaking to a tax accountant or financial planner can help if you are unsure about taxes.
- Create an estate plan
As Muslims, it is important to have a will. It is essential to determine exactly what happens to your assets after you are gone. Set things up legally and officially by creating a will with a financial planner or estate lawyer.
- Review your plan frequently
It is important to review your plan frequently and make necessary adjustments if your goals or circumstances change. Having a regular check-in date can help ensure things are going to plan. A financial plan can help you achieve your financial goals and get you to where you want to be. Stay the course and learn from your mistakes.