Is financial freedom one of your to-dos this year? You’re not alone. According to CFP Board Ambassador Lynn Ballou, CFP®, anyone can take control of their finances this year and achieve financial freedom.
“There are plenty of bad spending habits to acknowledge before achieving financial freedom,” says Ballou.
According to Ballou, the earlier consumers can maintain a firm understanding of their cash flow, the better off they will be planning for the future, paying for unexpected expenses and saving for retirement. Whether you’re new to organizing your finances or a veteran financial planner, Ballou shares her top 10 tips to achieve financial freedom this year:
Create a plan. The first and most important step you can take in your mission to achieve financial freedom is to commit to a financial plan to help you achieve your goals in a timely manner.
Craft a budget. Budgets are the cornerstone of successful financial planning. They are living, breathing plans that reflect your intent and can be modified as your life evolves. However, do so thoughtfully and in writing to help you stick to the budget.
Pay down all consumer debt. And if you can’t pay it all off immediately, reduce it to its lowest possible cost by lowering the interest rate on remaining debt and paying off the highest rate debt first.
Create a personal impound account. Just like you pay your mortgage, taxes and insurance from an impound account, divide your allocated funds for vacations and gifts by 12. Then, put that money into a monthly personal impound account.
Create an emergency fund. The best laid plans can still go awry. Set up an emergency fund with an amount that allows you to withstand unexpected economic loss without destroying your finances.
Make time for a comprehensive casualty insurance review every year. Make a New Year’s resolution to call your agent for an in-depth review every year to see if you can cut costs.
Ensure your portfolio will match your needs in all the appropriate timeframes. If you’re unsure where your investment portfolio stands, meet with your investment advisor to confirm you’re on the right track to meet your goals in the allocated time frame. If you are not, adjust as needed. Determine if your various account holdings are appropriate for the timeframes. If not, adjust them so they are.
Be philanthropic – but do so strategically. Begin by gaining an understanding of what you can afford to give and then determine how to balance the tax planning opportunities with your charitable intent.
Begin the estate planning process. Have you created a living will? If not, sit down with your estate planning professional to answer everything from who will manage your daily finances to who will make health care decisions and decide long-term care services.
Communicate your wishes to your successors. Create a book of knowledge filled with everything pertaining to the location of safes and contact information for estate attorneys.
Source: Certified Financial Planner Board of Standards, Inc.