4 Key Steps to Creating a Personal Financial Plan

Most people I talk to who do not have a personal financial plan are terrified of creating one. They think it involves complicated charts and graphs, tedious planning, and countless hours of their valuable time.

While I’m generally surprised to hear their concern, I can’t say that I blame them. After all, for most people, dealing with financial planning is far from a good time.

The truth is, it’s not as complicated as it seems. Follow these easy steps to create a simple, yet useful, personal financial plan.

1. Start with a budget.

If you don’t have a budget by now, don’t worry — it’s not too late to create one. Everyone’s budget will be different, but they all start with a basic formula: Your income minus your expenses. No matter how you slice it — yearly, monthly, weekly or even daily — that formula stays the same. To configure your monthly budget, for example, subtract your monthly expenses (e.g., your rent or mortgage, utilities, medical bills, savings and other necessary expenses) from your monthly income. The difference is what you have leftover to spend monthly on food, entertainment and other things you want. Divide the number by four (weeks) to get the amount you can spend weekly. And if you really want to get technical, divide it by seven (days) to see how much you should try to stick to each day.

2. Be responsible about student loans.

If anyone understands the unlikelihood of getting out of debt fast, it’s me. I took out an outrageous amount of money for grad school so, unfortunately, I won’t be out of student loan debt for a good while. But, even if you’re in a situation like mine, there are still correct ways to go about paying off your debt that will help boost your credit score and help you pay less in interest over the long term.

For starters, choose your repayment plan: standard (typically 10 years), graduated (graduated payments over 10 years), extended (spread out over 25 years), graduated extended (graduated payments over 25 years), or income based. It can be tempting to choose a plan with the lowest monthly payment, but that will also cause you to pay more in interest in the long run.

3. Avoid new credit card debt.

If you’ve acquired massive amounts of credit card debt in your lifetime, you’re not alone. In fact, the average U.S. household credit card debt stands at $15,325, according to NerdWallet.com, and in total, American consumers owe a whopping $856.5 billion. If you’re part of this statistic (and even if you’re not), don’t use credit cards for purchases if you don’t plan to pay off the balance in full each month. The best way to do this is to create your budget and stick to it. Make sure to incorporate your monthly debt payments into your necessary expenses.

4. Save for retirement.

When it comes to saving money for retirement, you should make an effort to save as much as you can as early as possible. Take advantage of any retirement plans that your employer offers, such as a 401k, which helps your money grow over time. However, if you do get a late start in the savings game, you have the option of putting even more money into your individual retirement account (IRA) or 401k than you would if you had started earlier.

Sarah Kaufman is the editor-in-chief of the Manilla Blog at Manilla.com, the leading, free and secure service that helps consumers simplify and organize all of their bills and household accounts in one place online or via the 4+ star customer-rated mobile apps. Sarah is also a regular contributor to Yahoo! Finance, Good Housekeeping, Woman’s Day, Redbook, The Motley Fool, The Jane Dough and other sites.

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