A financial plan will make success with money more likely for most people. There are some who make a large sum of money and have a significant aversion to frivolous spending. They will succeed without a plan. Those who don’t fit into both of these categories are less likely to become wealthy. That’s why a financial plan is so important for building finances.
Assess Spending Habits
Most people have little idea of where their money goes at the end of the month. They know what they got paid but have no accounting of where they’re spending money. Tracking spending can be a great first step in analyzing your financial standing. This one step can show where it’s possible to cut back to keep expenses lower than income on a regular basis. As long as the money going out is greater than or equal to the money coming in, it will be impossible to build wealth.
Get Matching Funds
Many people fail to take advantage of this simple step that guarantees an immediate 50% or 100% return on investment. Many companies offer retirement accounts that come with matching funds. A standard match might be 50% on every dollar an employee saves up to 6% of her salary. This effectively means that instead of saving 6%, a retirement saver would be saving 9% with no impact on her monthly take-home pay. If an employer offers a dollar-for-dollar match, this is an even better-guaranteed return. Starting early is important, so compound interest will start working and building wealth more rapidly.
Pay Off Debt
Debt keeps many people from getting ahead financially. This is especially the case with high-interest debt. Even a home at a low 4% interest rate can cost hundreds in interest every month. Getting rid of interest payments can allow your paycheck to go much further.
Having a plan for spending is an important step toward building your finances. From there, investing for retirement is important, preferably through plans with employer matches. Additionally, paying off any debt can help a paycheck go further because of the money that’s not going to the bank every month.