Guest Blogger: Silicon Valley Blogger on Developing a Financial Plan

16 Nov

The Silicon Valley Blogger generously shares some advice on developing a financial plan! That’s useful information for parents regardless of the age of their kids. Check out SVB’s Blog at The Didgerati Life.

Effective Steps To Develop Your Financial Plan

When tackling your finances, do you work with a plan or do you just play it by ear? I’ve discovered that most people who have their finances in order are folks who place priority on managing their money and on creating a plan that they adhere to over time. I’ve always wanted to make my money work for me (and not the other way around), and this I worked to achieve by developing a simple financial plan and by sticking to its guidelines. Following are some basic ideas I address in my own financial plan. The steps below follow a natural progression.

1. Set financial goals.
We’ve got lots of reasons why we save, but we can formalize this by formulating our financial goals. When we do so, we are able to focus our energies on what it is that we’d like accomplish. For instance, when I know that I’ve got something to aim for, it inspires me to work harder to get there. Just think of the things you want to save for and start there (e.g. are you saving for a trip, for a new house, for college or your retirement?). You’ll want to take note of your short, medium and long term goals, which will be the basis for your plan and savings strategies.

2. Manage your debt well.
There are many things you can do to make sure your debt load is under control. Your debt to income ratio and your credit score are things you should be aware of. Check out AnnualCreditReport.com and myFICO products to keep abreast of your credit rating. If you carry credit cards, make sure you shop for those with the best rates — 0% APR credit cards offer 0% interest rates for purchases for a limited time period. Or you may consider moving your balance from high interest rate cards to 0% balance transfer credit cards if you know you have the discipline to pay it off before any promotional rates expire. With the right tools and strategies, you can lower your debt payments so that you’re able to pay off your debt much faster.

3. Watch your spending.
Budgeting is one way to keep an eye on your spending patterns, and I believe that a successful budget — one that you’re able to stick to — is essential for a solid financial plan. You can create and manage your budget by using a free budgeting tool like Mint.com or Wesabe.com. Or you can purchase a desktop product like Quicken or You Need A Budget. Using a budget enables you to keep track of your spending and saving activities, and gives you visibility into your finances.

4. Build an emergency fund.
Once you’ve taken care of your debt, you should direct any money you’ve freed up towards building an emergency fund. The rule of thumb is to create a fund that’s equivalent to at least 6 months’ worth of expenses. I’d put the funds in a highly liquid account that’s easy to access while earning a return. High interest savings accounts or free high yield checking accounts are great places to stash your short term savings.

5. Invest in the stock market.
Finally, after you’ve addressed your immediate financial goals such as eliminating your debt and establishing an emergency fund, you’re ready to focus on your longer term savings and investments. Check out an online stock broker or mutual fund company for resources, tools and investment products to add to your diversified portfolio. Use index funds for your core accounts as they are tax efficient, low cost and automatically diversified.