We wake up, commute to work or do so remotely and get paid weekly, bi-weekly, or monthly to earn a living. Have you ever taken the time to do personal financial planning? Believe it or not, planning out your finances is the first step to financial freedom.
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1. You’re Ready for Life’s Unexpected Occurrences
The key part of financial planning is saving at least a small percentage of your income to place into an emergency savings fund. According to the 50/20/30 rule, you should use 50% of your income for your monthly recurring expenses, another 20% set aside for your savings and to pay off current debts, and the final 30% designated as discretionary income.
For example, if your income is $3,000 per month, you should try to set aside at least $600 in your savings account before the next month is up to cover unexpected expenses. These could be:
- Unplanned bank fees.
- Your car breaks down.
- Rapid fluctuations in inflation on goods and services you consume.
- A major appliance such as a fridge or stove malfunctions and needs repair.
- You get a traffic ticket
- Late fees if you forget to pay a bill.
2. Keeps Your Family Secure
The security of your family is of the utmost importance so that you have shelter, proper insurance coverage, and everyone’s needs satisfied. Reassure that you have enough income to satisfy all your needs before focusing on your wants. If your income is lower than your monthly recurring expenses, then you must find ways to cut back on those responsibilities or find a better job that increases your income.
Insurance coverage, food, clothing, and shelter are the top four needs that you should fulfill first before purchasing your wants. If you have to go a while without cable or streaming service to make ends meet, make that sacrifice so your family is well taken care of.
3. Allows You To Invest In the Future
Once you increase your income and maintain your monthly expenses, you can start to invest in your future. Whether it’s in the stock market, certificates of deposit, bonds, or another asset investment, you can slowly increase your wealth over time as you save your money and place them into interest-bearing accounts.
4. Gives You Command Over Your Life
It can be stressful figuring out how your income will be allocated towards bills and fulfilling your wants. If you have a plan, it will give you command over life. Plus, you will not be as stressed about where your money is being allocated, or if you will have enough to survive every week.
5. Helps You Set Goals
Financial planning allows you to set a variety of goals for short-term and long-term financial success. For example, if you are behind on a specific bill, you can set up a payment plan with the company to pay off your debt in three to six months. A long-term goal could be saving up money over a two to three-year period to go on a one-month family vacation to a destination of your choice.
If you ever need assistance with financial planning, consider consulting a financial advisor or an experienced family member. Don’t be afraid to use your resources!