Long-term financial success, for most of us, doesn’t just happen overnight. It takes planning (and adherence to your plan) to reach your financial objectives. You will need to ensure that you are ready for the challenges of the financial environment you are in, and the possibilities for the future. As you put together your long-term financial plan, there are a few things to consider:
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How to Create a Long-Term Financial Plan
Your first step is to determine your financial priorities. Figure out what you want to do with your money, and how it can help you reach your goals. From sending your kids to college, to buying a home, to donating regularly to charity, to retiring to a nice community, decide what is most important to you. Think about your money, and what it can accomplish. Consider your values, and set priorities based on reaching your goals and adhering to what is most important in your life.
Next, look at your current financial situation. You can start by looking at your net worth, as well as looking at your current income and expenses. Identify spending that doesn’t help you reach your financial goals, or that doesn’t fit your values and priorities. This is spending that you can eliminate, putting that money toward other purposes designed to help you accomplish your objectives.
Look at what you have, and use it as a starting point to help you create a plan for your money.
Once you have decided what’s important, and where you are financially, it’s time to determine what timeframe you have to reach your goals. Order your goals according to when you want them achieved. Buy a home is likely something you will do before you send your kids to college, or retire. If you want to take a family vacation, or donate to charity, these are goals that need to be met sooner — as is the goal of building up an emergency fund.
Divide your financial goals into short-term, medium-term and long-term. You will need to figure out how much money should go to each goal in order to reach it in the allotted timeframe. Use your current financial situation as a basis for helping you figure out how much you can afford to put toward different goals. You can also use your priorities to help you determine which goals will be funded first.
Don’t simply settle for what you make now, especially if you want to ensure that you can meet your lifestyle expectations and accomplish your lont-term objectives. It is possible to make extra money if you plan ahead.
- You can start building an income portfolio now, with dividend stocks and other income investments, that will eventually yield a substantial income.
- Consider using DRIPs to help build your wealth. Then, when you need the income stream later for retirement, or to pay for college, you can leave the DRIPs behind and instead use the income to your advantage. It can take seven to 15 years to build up a solid income portfolio, so that can be part of your plan for the future.
Other ways to earn more now can include starting a side hustle, doing a little freelance work, and even getting a part-time job. Look at your situation, and decide what would be best for you.
Tweak the Plan
Realize, too, that even the best financial plans need tweaking. You don’t want to panic when the markets drop, or when the economy tanks, but you do need to be ready to re-evaluate your plan, and make changes when warranted. Check your portfolio regularly to make sure that your asset allocation still makes sense, and that your investments meet your goals. It is common to need to do a little rebalancing sometimes. You can also tweak your plan if your goals and priorities change.
The Bottom Line
Guide your finances toward your desired outcome with the help of a long-term financial plan. It doesn’t have to be rigid, but it should be something that can help you reach your goals, and help guide you through the ups and downs of life.
Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own personal finance blog: Planting Money Seeds.