You’ve recently come into some money and you’re unsure of what to do with it. You’ve heard buzzwords like RRSP and TFSA, but if you’re being honest, you don’t know what they mean or how they benefit you. You’re ready to get serious about your finances and want to put some money away in case of an emergency. You are sure you want a financial plan put towards your retirement, but again you don’t know where to begin.
If you fall into any of the above categories, you’re in the right place. Here are the 4 steps to consider as you create a financial plan.
What do you have?
While seemingly inconsequential, this step is one of the most important steps to consider when creating a financial plan. It’s important to take inventory of what you own and have purchased. This can range from small things like a laptop, to much bigger things like a car and a home. By taking inventory of what you have, you’ll know exactly where you’re starting, which will then act as a road map for where you’re going.
How much do you owe?
To establish a concrete financial plan, you will need to make a note of how much money you’ve borrowed over the years. This includes credit card debt, student loans, mortgage, late bills etc. By calculating these debts, you’ll have a clear sense of how much you can realistically put towards your financial plan. Paying off your debt should be part of your plan, and this step helps you take inventory so you can plan towards a debt free future.
How much do you earn?
Make a note of how much money you’re currently making. This includes full time jobs, part time jobs, and any side hustles you have. Anything that provides you with an income should be factored in to this stage. Clarifying your total earnings will give you the perspective you need to properly allocate your funds. You cannot invest into a financial future with no finances, therefore establishing total earnings is a crucial part of the process.
How much do you spend?
This part is perhaps the most difficult stage for most people curating a financial plan. You need to look at how much expense you have monthly. This includes necessary expenses like car payments and rent, and indulging expenses like entertainment and social events. You might find that you need to cut out some expenses so you can free up your finances and put them towards your financial plan. By doing this, you’ll free up some extra cash, allowing you to fully fund your financial plan to the best of your ability.