People no longer use paper road maps to get from point A to point B. However, they do need a financial roadmap to track their progress towards their financial and life goals. This document helps them remain organized by breaking down each step required to achieve their set goals. The roadmap keeps them accountable while reminding them of exactly what they are working towards.
While this road map isn’t a legal requirement, many people find it to be beneficial. They need a tangible reminder of how to plan for wealth. This document covers multiple areas of their finances, including tax valuation and retirement planning.
Creating the Roadmap
To create this document, a person needs to start by evaluating their current financial situation. Doing so provides them with point A in the roadmap. They need to look at their balance sheet and monthly cash flow to determine where their money is going. Furthermore, they must establish financial goals. One person might save for a home while another is saving for their child’s college. Many individuals find they need to pay off debt. Once each goal has been listed on the page, the individual breaks it down into small steps. These steps are the road that will get them to their final destination, known as point B.
Flexibility is Key
Life happens, so a person needs to be flexible with their roadmap. They need to find a way to reward themselves when they achieve a goal. If they have a financial setback, they can look at this road map and remember exactly why they are working so hard. It’s a great feeling to know that the money for a down payment on a home has been saved, or a kid’s college fund is ready when they head off to school. Many people take the step just because they are continuously stressed over money. The road map helps reduce stress by giving them a plan they can follow to get their finances on track. Adjustments can be made at any time to the road map when a person’s priorities change or they encounter obstacles that must be overcome.
Budgeting
To achieve the goals laid out in the financial roadmap, a person must first learn where their money is going. They then need to find areas in the budget where expenses can be cut back. Many people don’t realize how often they are eating out or how much they are spending on their morning coffee. Subscriptions are another area where many people are spending money without realizing the full cost.
When unnecessary expenses have been eliminated, the individual knows how much money they can put each month towards the goals they have established in the roadmap. However, they will likely encounter setbacks and need to account for those in the budget.
Experts recommend putting three to six months of living expenses into a high-yield savings account. This money can be used for emergencies or when unexpected challenges arise. Individuals should also continue contributing to their 401 (k) to ensure they don’t miss out on the employer match. Increase these contributions yearly to maximize retirement savings. In addition, any person who is within the income limitations for a Roth IRA should open one to increase their retirement savings.
Once these retirement funds have been reserved, create sinking funds for financial goals established in the roadmap. Any funds remaining after money has been put into the sinking funds can be used to pay off debt quickly. There are many methods a person can use to pay off debt, and each individual must find the one they are most comfortable with.
Every person needs insurance, as well. Term life insurance is beneficial to those who have family members financially dependent on them. Disability and home insurance coverage are required, as one never knows when an unexpected event could occur. Talk with a financial advisor to learn whether other insurance products should be purchased.
A financial advisor can help create this roadmap and ensure a person’s assets are well-protected. They will also recommend documents such as healthcare and financial power of attorneys, a will, and other estate planning documents. These documents, combined with the financial roadmap, will help a person grow and protect their wealth.
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