You might think that putting together a financial strategy only applies to big companies who are after a big profit. They spend countless hours in a board room dishing out ideas and comprehensive plans to ensure the organization reaches its target. However, putting together a strategy is not limited to big corporations.
You can also do the same thing with personal finance. In fact, you need one for your finances. A recent survey by Charles Schwab reveals that only 1 in every 4 Americans have a written financial plan. Now some might have a plan in their heads but that can easily be forgotten. This only shows how important it is to have a financial blueprint.
One of the reasons why it is important to have a financial strategy is because it helps bring you closer to your financial goals. It serves as your blueprint in reaching your target. Your strategy can be likened to a ladder where you have to take one step after the other to get to your goal. The strategies below will help you strengthen your finances as you reach your goal.
Create a strong emergency fund
It is always a good idea to include your emergency fund when putting together your financial strategy. One reason for this is that you never know what will happen in the future. You could be in a great financial position at present but that can all change in a heartbeat. You never know what will happen tomorrow so it is best to be prepared for it.
The idea is to start a savings account as a reserve fund. This would include your emergency as well as the rainy day fund. The two funds have a lot in common but the main difference is where you use each of them. The rainy day fund is meant for the smaller unforeseen expenses while the emergency fund is for the bigger expenses.
The reason why you would want to separate the two is to preserve your emergency fund. This is because when you have smaller emergencies and you continuously withdraw from your main emergency fund, the time might come where you would need it and it is not as big as it used to be anymore. Separating the two ensures that you have money for both small and big needs.
Start with retirement savings early
Another financial strategy you can consider is starting to set aside money for retirement as early as your first paycheck. The problem that a lot of people are facing, especially the young ones, is that they think retirement is too far away. It might look like that from the beginning especially when Gallup explains that average retirement age is at 66 years old.
If they are only in their 20s, retirement is over 4 decades into the future. They would think that they still have a lot of time to save up for it. However, that retirement age will come sooner than they expect. Rather than putting off the goal, a good strategy is starting as early as possible. This helps you save more in the long run.
The reason for this is that the compound interest would have a lot of time to work in the background. It helps you increase and compound your money over time. If you also invest in stocks, letting them grow over a longer period of time improves your chances of receiving great returns. This can be a great addition to your retirement fund.
Pay down your debt aggressively
When you think of a financial strategy, pay down your debts more aggressively. Doing so will yield a number of financial benefits. For one, you get to free up some funds in your budget. As you do this, you can put more into some of your accounts. You can save more for retirement or even strengthen your emergency fund.
If you think of your retirement, it is a goal to try and pay off your debts before actually retiring. This is because you do not want to use up your savings just for debt payment. One of the longest payments you might have could be for the house. If you pay down your mortgage more aggressively, you can cross out a large expense item in your budget.
You can do that by making advanced payments on your loan. Not only will you pay your mortgage faster, but it will also help prevent you from late payments. If you are paid months in advance, that also serves as your buffer in sending your monthly payment. You can also talk to your lender and find out if they accept principal payments for your mortgage.
Create multiple income channels
Creating several sources of income is a financial strategy you need to seriously consider. It will help you bring in more cash into your budget making it easier to reach your goals. Of course, this is easier said than done and has a lot of approaches into it. One of the most popular ways is getting a side gig to complement your income.
This can be a second job after you clock out of your regular day jo. It can even be something you only do on weekends. One way to make it a lot easier is to look for a side gig that revolves around your hobby. If you love baking, sell baked goods online. You can also go out and offer your design services to business establishments around your area.
There are also opportunities online where you do not have to head on out to another job. Online jobs are a great source of extra income without having to invest too much time and effort. It is not to say that working online is easy but compared to going out to an actual second job, being at home in front of your computer is way easier.
Keep tabs on your credit score
One financial strategy you should never overlook is to keep tabs on your credit score. Though ValuePenguin shares that the average credit score is at the Average/Fair rating of 695, consumers still need to keep a close eye on it. Knowing your score will help you improve your chances of getting favorable loan terms in the future.
When managing your credit score, the number one priority is making your payments on time every single time. If you procrastinate and open your bills last minute, there is a good chance that you will miss your payment due date. As soon as you receive your bills, open them up and pay them as soon as possible.
One idea is to enroll your bills in an automatic payment system. This way, you do not have to worry about missing a payment. You just have to make sure that the account is funded to meet your payments
Live off on one income and save the other
This is one of the more challenging financial strategy couples can look into. If both of you are working, you can work your budget around one person’s income and save the other. This gives you a lot of room to work with in reaching your goals. One thing you need to remember though is that you have to work with a tight budget to make this happen.
You need to have a financial strategy to help you reach your goals in life because it serves as your blueprint in life. It will serve as your guide and push you closer to your target.