Financial planning is one of the most important topics for individuals who live in the West. If you have a good financial plan you can easily hit upper-middle class, send your kids to college, prepare for a lazy retirement, and leave earth with a nice inheritance for your kids.
But first things first: what is financial planning?
Definition of Financial Planning
Financial planning is an extremely simple concept. It’s where you plan your life on the basis of your money. Planning to consistently invest, take a yearly vacation, save for your children’s college, planning for retirement – these are all part of your financial plan.
A financial plan is essentially just any plan that is based on a financial concern. That’s basically it.
History and Background
Financial planning is a relatively new industry. In the early 20th century, millions of Americans had left the farms and had begun working in a relatively new corporate America. These individuals had steady monthly incomes, and had a collection of investing opportunities prepared for them in Wall Street and other financial avenues. The ease of a consistent income and easy investing opportunities for everyone was something that wasn’t common much before this.
Because of this steady income and a fairly streamlined method for investing, many of these people decided to try to plan to combine their consistent income with the ease of investing in order to consistently amass a small fortune over the course of their lives. The end goal was, of course, retirement.
The math was and still is simple. If a 20-year-old man makes $50,000 per year and invests just 10% of that in the stock market, then he can add $5,000 a year to his investment portfolio. Assuming he gets an 8% return on his investments, he can put away a total of [number] by the age of 60. He can then comfortably retire. This all also assumes he doesn’t get any raises – something that’s very likely for a hard worker.
How to Write a Financial Plan
Writing a financial plan is easy. Figure out what you want to do with the rest of your life. Now figure out how to pay for it. That’s your financial plan.
Don’t make the mistake of thinking that all financial plans are the same – just because most people want to go the “career, savings, retirement” path doesn’t mean you have to go that route as well. Your financial plan is just that – your financial plan. It’s not your advisor’s plan, your broker’s plan, your parent’s plan – it’s your plan. Live your life the way you want to live it.
To learn where to start next, just browse this website or ask me a question.
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Financial Strategies, Wealth Management 101