Financial Planning is a comprehensive evaluation of one’s current and future financial situation. It uses known variables to predict one’s income and assets over the long term. It can help one save for retirement, pay off debt, and live comfortably. This is especially useful for retirees who want to avoid the pitfalls of compounding interest and other common pitfalls. This is why it’s important to have a financial plan before retiring. There are many benefits to using a financial planner.
The first step in financial planning is to understand your current financial situation. It’s better to have a small amount of money in the bank than to spend it all. However, it’s better to invest it in mutual funds, as they will yield a higher return. Once you know your financial situation, you’ll be better prepared to make a financial plan and stick to it. You can even use the plan as a springboard for achieving your long-term goals.
The second step is to create a budget. A budget helps you set a realistic budget, which you can follow and adjust over time as necessary. According to NerdWallet, fifty percent of your take-home pay should go toward needs, thirty percent to wants, and twenty percent to debt repayment. A medium-term plan involves reducing credit card debt, while long-term goals include planning for retirement. Your financial planner will also ask you about any employer-sponsored retirement plans you might have.