Financial Freedom Plan
One of the Best Ways to Manage Money
A financial freedom plan is one of the basics of money management and is an excellent tool to keep you on target toward reaching your financial freedom goal. It also puts into perspective the importance of saving money.
When you go on a trip, a map helps guide you to your destination using the quickest and easiest route. Similarly, a financial freedom plan provides a map to achieve your goals while avoiding the detours and pitfalls along the way.
There are many ways to make a financial plan. An analytical person may spend a lot of time to develop and tweak a detailed and comprehensive plan. Others may prefer a big picture approach.
The main thing is to keep the plan simple enough that you won’t be too overwhelmed, but include enough detail for it to be beneficial.
Whatever form your financial freedom plan takes, the very act of putting it in black and white, whether on paper or computer, forces you to focus on your financial situation.
Here are some simple suggestions to get you started:
- Determine your current net worth.
- Add up the current value of all your assets. Include bank accounts, CD’s, investments, retirement accounts, real estate, cars and anything else of value.
- From this, subtract what you owe. Include credit card balances, student loans, car loans, home mortgages, and any other debt.
- The result is your current net worth.
- Write down your financial goals. Take some time to think about this step. Your goals may vary depending on your definition of financial freedom. Also, you probably will have goals that have different time frames.
- As best you can, write a cost estimate and desired achievement date for each goal. This will be easier for the shorter term goals.
- Now, assess your current financial situation.
- How much income do you have to devote to your financial goals?
- Do you expect that amount to increase? If so, how? If not, what can you do to increase it? What are some extra ways to make money?
- What steps can you take to decrease your current expenses? Personal budget planning will guide you in this process.
- Are your goals achievable? If not, you may have to adjust of your expectations.
- As you think about these things, write down your ideas.
- Finally, take a few minutes to identify unusual situations that might happen to you and how you might deal with them. For instance, how would you cope with the financial challenges of being disabled? If you died, would your family be in financial trouble? You may be able to deal with these and other situations through insurance or some other alternatives. Include some comments about these risks in your plan.
Once you have completed your financial freedom plan, don’t leave it on the shelf to gather dust! Refer to it often to make sure you are on track. Don’t be afraid to modify it often to reflect your current situation and plans for the future.
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