Why create a financial plan in 2022

The new year is an opportunity to start fresh. People can make New Year’s resolutions to get healthier, finally start that side hustle, or connect with old friends. But the one thing everyone should have on their to-do list for the coming year is creating a financial plan. For those who don’t have one or are hesitant to take the time to make one, here’s why people should create a financial plan in 2022.

What goes into a financial plan?

Before exploring why people need a financial plan, it is important to consider what is involved in developing such a plan. A good financial plan acts as a roadmap. He understands:

Short-term goals: These goals are in the near future, think about the next 0-7 years, and can include things like saving a down payment for a house or paying for next summer’s family vacation.

Long-term goals: Long-term goals include anything more than 8-10 years away, such as retirement or funding a young child’s education.

Investment Strategy: An investment strategy encompasses the accounts one currently owns and the amount invested in them. It also outlines risk tolerance, asset allocation and an investment plan over time.

Protection and Savings: Emergency savings and life insurance policies are a few types of financial tools that provide financial protection. For example, a whole life policy can help protect loved ones through the payment of a death benefit and provide an opportunity for additional savings.

Debt management: A financial plan should outline existing debts, including how much someone owes, the interest rate, and how much they pay each month. A good plan also details the debt repayment strategy and the expected debt repayment date.

3 good reasons to create a financial plan

While there are many reasons to create a financial plan, these three are the most impactful.

1. Identify the gaps. A financial plan provides an overall view of finances, allowing someone to assess whether their investments are too heavily weighted in one area. For example, one can contribute to a pre-tax 401(k) and an IRA, but have no active after-tax assets such as a taxable brokerage account or a whole life insurance policy.

2. Maintain accountability. A good financial plan serves as a benchmark to help someone move towards their goals. And it also lets them know when they have stopped moving or even backed up in the wrong direction. Following a financial plan allows you to keep working towards goals until they are completed.

3. Be motivated. Seeing progress financially can motivate people to stay the course. Watching savings and investments grow from year to year and monitoring how one is progressing towards financial goals can encourage them to regularly strive for new goals.

The essential

A financial plan can benefit anyone, regardless of their current financial situation. By outlining goals and addressing aspects of personal finance, from investing to protecting, one is able to identify gaps, stay accountable, measure progress to make needed changes, and stay motivated to move forward. until the end. Each of these benefits is a great reason to start creating a financial plan today.

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Louis R. Hancock