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Financial Planning in a Nut Shell

To see the reason for each of the financial planning steps I’m going to explain the process backwards. The end game when it comes to financial planning is to become (and stay) independently wealthy. That sounds unattainable doesn’t it? But all that “independently wealthy” means is that you can retire. It just means that you have enough money the bank, or coming from investments, that you don’t have to work for money anymore.

Step 4: Save for retirement

In order to do this the gurus say to invest 15% of your income. Easy peasy right? Ha! I’m sure you hear 15% of your income and think “yeah right! I have bills to pay and children to raise. How on earth am I going to save 15% of my income?

Step 3: Pay off debt

In most cases just paying off debt will create enough cash flow to start saving a significant amount for retirement. I know what you are thinking “Pay off my debt?! How am I supposed to do that? I’m going more and more into debt every month, how am I going to turn that around?

Step 2: Create a budget

To stop the debt cycle you need to create and live on a budget. Along with that you need to put something away in case of emergencies so you aren’t turning to credit in times of need. A budget will help make sure you are only spending money on what is important to you. It will help you make daily financial decisions. I hear you saying “Oh, here we go again with the budget talk. I’ve tried so many times to live on a budget and it’s just not realistic. I’m a busy person and my finances don’t fit into pre-made boxes. Budgets don’t work for me.”

Step 1: Track your spending

Before you make a budget spend a month tracking your spending. Once you have a month’s worth of tracking you will have a pretty clear picture of where your money is going. Use this information to create a budget. This way your budget is using real life numbers, not guesses or “shoulds”. Tracking your spending doesn’t have to be a big deal. Find a method that fits your life. You can keep a notebook. You can use The Birdy. You can use online trackers such as mint. You can use receipts and a spreadsheet (my personal favorite).

I made this super fancy graphic so you can see the financial plan in pictures.

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