When Is The Best Time To Start Financial Planning? (Complete Guide)

Good financial planning can make a huge difference to your quality of life as you get older, but it is something that many people tend to put off until they’re older and feel more secure with their finances. So when is the best time to start financial planning? This article will help you to get started and secure your financial future.

In this article, you will find our financial planning tips to help you take charge of your finances at any age. You will be far closer to finding the appropriate solution to your investment needs.

Who Needs Financial Planning?

Financial planning is necessary for every person that earns a living and plans to have enough money to live off after retirement – i.e., everybody. We all need financial planning, no matter how old you are or how much money you have in the bank.

The most common mistakes that people make when it comes to financial planning is say to themselves, “I’m too young to start preparing for retirement,” “I’m so close to retirement that it won’t make a difference,” or “I don’t have enough money to start financial planning.”

All of those sentiments couldn’t be farther from the truth.

Lamenting over your age, your income level, or any other obstacle is simply an excuse or a justification that takes you another step further away from financial security. So, let’s look at how you should carry out your financial journey in each age category:

In Your 20s

By the time you reach your 20s, the chances are you will have completed your education and will be starting your first job. More importantly, the financial decisions that you make (even when you’re earning a small salary) will define your financial wellbeing for the rest of your life.

So, putting aside some money and acquiring healthy money-managing habits will go a long way towards maintaining good spending, saving, and investment habits for the next 40 years or so. Here are some important things that you need to learn in your 20s to ensure that you’re on the right track:

• Learning how to create a budget

The first and most obvious thing that you need to learn on your journey towards good financial planning habits is how to create a good, comprehensive, and dynamic budget.

Using Excell or apps or any budget management platform, you should be able to see where your money is coming in and where you’re spending it. You need to monitor how much of your money is being taxed, your fixed expenses, how much you’re saving, what you’re spending on groceries and other necessities, and what you have left to spend as disposable income.

A great budget can go a long way towards keeping track of what’s going in and out of your bank account, allowing you to be more considerate of how you spend your money.

• Setting financial goals

Once you’ve learned how to set up a budget, you need to focus on your financial goals. Do you want to retire at 65? Do you want to be a homeowner? Would you like to save up enough money to go on an overseas holiday every year? Do you need to start a college fund for your children?

What is it exactly that you are planning to do with the nest egg that you’re adding money to every month? Establish your goals and how much money you will need to have to reach them.

• Planning for your financial future

To achieve your financial goals, you need to establish a timeframe and consider the specifics about what it will take to reach the place that you want to be. Break it down to step-by-step processes, setting short- and medium-term targets for yourself.

Prioritize which goals are more important than others. Perhaps saving up to put a deposit down on a car is a more urgent need than buying your first home, so make sure that the money you’re setting aside is going towards your car and that only the surplus savings will go towards the home, for example.

• Setting up a retirement account

The unifying thread for any financial plan will be to set yourself up for retirement. No matter how old you are, your goal should be to have enough money saved up for when your career eventually comes to an end.

The last thing you want is to be a financial burden to your children or the government because it will make old age significantly less dignified.

This means that you should set up a 401(k) or some other retirement plan as soon as you begin your first job. Also, remember that you may not retire at the age of 65, as was the case in years gone by.

More and more people are working into their 70s, and if you make a lot of money, you may even target a retirement plan that will allow you to retire in your 40s or 50s.

The general rule of thumb is to set aside approximately 15% of your income for retirement savings, but it’s not set in stone, and if your budget doesn’t allow for it, a smaller contribution is better than nothing.

• Acquiring smart spending habits

For anyone in their 20s, spending habits will likely be the biggest obstacle you face in financial planning. You need to learn strategies to avoid impulse shopping and find the best deals.

Shopping impulsively is a form of instant gratification that can decimate a budget. Before buying an item, ask yourself if you really need it or if you can do without it. And when buying items, such as groceries, clothing, and other everyday expenses, explore every option you have to find the best deal for yourself.

Find stores that offer good specials, loyalty discounts, and other cost-saving options. And, if necessary, shop at a different store that offers it at a better price.

You may find that you’re only saving a couple of dollars on that other laundry detergent, but every dollar saved eventually adds up, and you can find yourself with a lot more money at the end of the month if you’re consistent with cost-saving habits.

Another great strategy to avoid impulse shopping is to draw up a list every time you head to the shops. Stick to your list, do not brose, buy the items you need and avoid being distracted by other items that you don’t need.

• Setting up an emergency fund

Another way to avoid a budget catastrophe is to set up an emergency fund for when that day comes that you crash your car, break your foot, or when your house gets struck by lightning. You can be as disciplined as you like with your financial planning, but the truth is that we always encounter a bit of bad luck along the way.

So, along with your saving and retirement funds, put a little bit of money aside every month in case you take on a big expense that you weren’t expecting.

• Career growth and networking

There are two sides to every financial planning strategy: your expenditures and your income.

So, you must take care of the income side of things. The best way to progress in your financial plan, reach your targets and save higher portions of your income is to grow your income.

It is important to focus on your career growth and build a good network of contacts that can help you achieve your goals.

• Employee benefits

An often overlooked component of the financial planning process is the opportunity to take advantage of the various employee benefits that you’re entitled to.

It is fairly common among employers to offer various benefits to their employees, such as health insurance, retirement plans, and other benefits, to which they will also contribute.

These benefits could allow you to save at twice the rate or take on certain expenses at a significantly reduced price.

Plus, your employer “forces” you to make your contributions by deducting them from your salary each month (pre-tax), meaning that you have no choice but to be disciplined with your contributions every month.

• Savings first

Before you do anything after receiving your monthly paycheck, your first contribution must invariably be to put 10-20% of your income into a personal savings account. The easiest way to ensure that you stick to this commitment is to set up a savings account with your bank that automatically transfers some money from your current account with a monthly debit order.

• Tracking progress

A big part of financial planning is to keep track of your results. You should, on a fairly regular basis, put some time aside to see how far you’ve come. Over time, once you see yourself making progress and your savings account growing, it will help to reaffirm your commitment to financial planning.

Not only will you be more steadfast as you continue your journey, but it can help you to make any necessary changes in the future. Things change over time. You may find a pattern in some of your bad spending habits that you can take note of and actively avoid.

There are plenty of reasons to track your progress, and it will go a long way towards creating good saving and spending habits as you progress through your career.

• Create a financial support system

Especially when you’re young, there’s nothing to lose from reaching out to your friends and family as part of your financial support system.

This doesn’t mean you will share bank accounts or look through each others’ finances; it doesn’t mean you are lending or borrowing money from each other. It simply means that you have people who care about you who can help you navigate the very complicated process of managing your finances.

Whether it’s learning from someone else’s financial wisdom that they’ve acquired in their own experiences, or if it’s a few tips on where to get the best deals, a financial support system can help you to make the best decisions and formulate the best plans to secure your financial future.

• Monitoring your credit record

While you’re focusing on acquiring and successfully executing these various skills and strategies, you should do whatever you can to create a good credit record. This means that you should avoid taking on unnecessary debts and never miss any payments.

Also, make sure that you are taking on manageable debts. Whether a credit card with a low credit limit, a loan on a car or a cell phone plan, take on a manageable amount of debt that shows that you consistently pay your bills every month. This allows you to set a precedent (credit score) that will help you to apply for large bank loans in the future.

It is also important to frequently check your credit record to ensure that you haven’t fallen victim to identity theft.

• Finding the perfect balance

All of the measures you can take above to start financial planning in your 20s are very important, but it’s a daunting task and can overwhelm anybody. But remember that you are still in your 20s, and you will need to set some time and money aside to live your life and make a few mistakes along the way.

You don’t have to be perfect and deprive yourself of the joys of youth. The trick is to find the right balance that allows you to enjoy yourself and prepare yourself for the future.

In Your 30s

If you’re in your 30s, you may be making significant progress in your career or starting your first business. You may also be focusing on buying a home, getting married, or having children. You will be taking on many financial commitments at this juncture.

And with all of your new assets, insurance is becoming important. All of this wealth that you’ve acquired must be insured. Whether it’s household insurance, car insurance, funeral cover, life insurance, or anything that can protect what you have, this is going to start taking up a significant chunk of your budget.

By now, you should prioritize learning how to stick to a budget if you haven’t learned that already. You need to stick to your paycheck and never overreach. Take a look at your financial goals and reaffirm or change the financial goals you set for yourself a few years ago.

Beyond this, you should be fully educated about loan agreements. Don’t take on a long-term home loan if you don’t understand anything about prime interest rates or surety.

Think about the long-term effects that it could have on your financial future. Make sure you read the fine print and understand exactly what your loan agreements entail.

In Your 40s

If you’re starting financial planning in your 40s, it may feel like retirement is getting too close and that it may be too late for you to start putting consideration into your financial future. Luckily your 40s are the period where you will reach your peak earnings potential in most careers!

You’re roughly halfway between starting your first job and traditional retirement, which means that you will be able to make significantly higher contributions towards savings accounts, retirement plans, and insurance payments.

So, at this moment in your life, you should first prioritize setting up an emergency fund because this could be a risky period of your life. Losing your job, a major household expense or a medical emergency can be devastating – especially if you have a fairly high standard of living and dependents.

Furthermore, you need to set up a financial plan to pay off all of your debt. There’s no doubt that by the time you’re 40, you will have picked up quite a lot of debt over the years. These debts could be taking up a significant portion of your paycheck every month and maybe the biggest barrier to financial success.

In addition, you should be setting aside as much money for retirement, investments, and savings as possible. This includes creating or maintaining college funds for your kids so that they don’t have to take on student loans to further their education and won’t start their careers on the back foot.

Finally, your 40s is a time when you need to consider your mortality. Set up an estate plan, a will, life insurance, and disability insurance to ensure that your family will be financially secure in the event of your death or incapacitation.

In Your 50s

When you’re in your 50s, the subject at the front of your mind will always be retirement. So, you need to be making overall retirement plan considerations, such as catching up on contributions.

You also need to prepare for major life changes, such as your children moving out of home, which will radically reduce your household expenses. This may also involve downscaling to a smaller home.

Furthermore, you may have to review some of the details of your insurance plans that may no longer be applicable, and, as is the case in your 40s, you need to focus on your estate plan in the event of your untimely death.

Why Should You Start Financial Planning Early?

As you can see, you should take all of the biggest steps towards financial planning in your 20s. Acquiring skills and adopting habits like budgeting and avoiding impulse spending is critical for getting the most out of your money and mastering financial planning.

And there’s another important factor to consider: Compound interest.

Compound interest is the phenomenon where the interest earned on savings you’ve made today will add to the interest of your savings tomorrow. So, the same amount of money that I set aside today will earn me far more money in the long-term than an identical contribution made ten years from now.

A Step-By-Step Guide To Building A Personal Financial Plan

If you’re looking to learn the ropes of financial planning, there are several things that you need to learn how to do, in the order that we’ve set out above. However, if you’re looking to take on a personal financial plan at any age, you should familiarize yourself with, acquire the necessary skills for, and execute the following:

1. Creating a budget
2. Familiarizing yourself with your employee benefits
3. Finding a financial support system
4. Setting up a savings account
5. Setting up a retirement plan
6. Setting up insurance and emergency funds
7. Acquiring loans and other debt
8. Learning better spending habits
9. Tracking progress
10. Checking credit record
11. Finding balance

Can I Learn Financial Planning On My Own?

Financial planning is no easy task. It requires deep, thorough knowledge about financial management, forward-thinking and strict discipline. Some people can set and stick to specific financial goals, and others are terrible at it. But there’s no harm in enlisting the services of experts in the field of financial planning.

What’s most important, however, is to ensure that you have as much knowledge as possible about the ins and outs of financial planning. You need to know exactly where your money is going and what it is doing for you. Avoid unsolicited advice from people posing as professionals and always check their credentials.

However, it is possible to learn financial planning on your own. There are plenty of resources available that will take you through the basics and into the most important aspects of financial planning.

However, it will cost you time and money, and you should establish whether it is worth it instead of simply asking a professional to do it for you.

Financial Planning:  Online Courses For Beginners

If you want to take your first steps towards learning financial planning, many resources will help you on your journey. However, we recommend the following online courses that will help you with the basics of financial planning:

[lasso ref=”coursera-financial-planning-courses” id=”242″ link_id=”341″] [lasso ref=”udemy-financial-planning” id=”244″ link_id=”342″]

Final Thoughts

So, when is the best time to start financial planning? Simply put, the best time is right now! The earlier you start putting money aside for emergencies, retirement, and general savings, the better. However, it doesn’t matter how old you are or where you are in your career. It’s never too late. And there’s only one way to put your financial future at risk – by making another excuse not to get started.

Sources

When to Start Financial Planning (and What to Think About First) | BeyondYourHammock

What is the Right Time to Start Financial Planning? | Good Moneying

20 Skills to Help You Manage Your Money in Your 20s | The Balance