When you hear the words “financial planning,” do you imagine old white guys reviewing their investment portfolios and drawing up a will? Financial planning is often presented as something for the uber-rich, but it’s something everyone should be doing.
Yes, you can map out your financial future even on a modest salary. Creating a solid financial plan starts with breaking common misconceptions, re-evaluating how you manage money, and mapping out steps to meet your goals.
If you want to secure your future, let’s pull apart some common myths and understand the real benefits behind financial planning.
Myth #1: “I Don’t Make Enough Money to Start Financial Planning”
A common misconception is that financial planning is for lawyers, brokers, and others with a six- or seven-figure salary. Even with just a small savings balance or a modest four-figure income, you can benefit from financial planning.
Financial planning on an average salary can look like:
- Setting financial goals to earn five figures
- Creating and following a budget that helps you live within your means
- Mapping out how to bring in an extra $500 a month
- Building an emergency fund of $5,000
- Tracking your expenses so you can control your spending
By planning out how to better manage your money, you can go beyond just working to make ends meet.
Myth #2: “Financial Planning Is Only for Retirement”
Maybe you’re already planning a bit, such as contributing to a 401(k). Saving for retirement is a great first step, but don’t limit your financial planning to this one area. Here are some other areas to consider:
- Create an emergency fund – This could mean having $9,000-$18,000 saved if your monthly expenses are $3,000.
- Accelerate debt payments – Start by putting an extra $200 toward your debt payments each month, so you can pay off your debt faster.
- Focus on short-term goals – Make a goal to save $3,000 for a vacation.
- Increase your tax optimization – Consider lowering your taxable income by donating to charity or investing in a retirement account.
Myth #3: “I’m Too Young to Worry About Financial Planning”
Being young doesn’t mean you don’t need to prepare for your future. Yes, it’s tempting to just live in the moment and use your extra money for happy hours and last-minute vacations.
Yet building good habits now is what financial planning is all about. Whether it’s budgeting, automating your savings, learning how to invest, or filing your taxes early, consider what you can do to improve your money management.
Here are some things you can start doing today:
- Start yourself on a budgeting system like the zero-based budget, where every dollar is assigned a purpose
- Consider saving 15% of your income every month
- Learn about different investing methods, such as high-yield savings accounts and index funds
Remember that the financial decisions you make now can either help you or haunt you in the future.
Myth #4: “I Can Handle My Finances Without a Plan”
If you’re financially secure right now, you might think that you don’t need a plan. However, you could lose your job tomorrow. Or your car engine might stop working on the way to the store. Having a plan can help you navigate the unpleasant surprises of life.
You may feel like you’re good with your money now, but can you handle an emergency or an unexpected expense? If you’re not prepared to drop $900 for an unexpected root canal, then consider doing some financial planning.
Here are some simple steps you can take to stay on top of your finances:
- Continuously monitor your bank accounts
- Create financial goals around income or spending habits
- Take a course on investing
Simple Steps to Start Today
Hopefully, your objections to financial planning have been settled, and you’re ready to start planning. Here are some simple ways you can get started setting up your financial future.
Track Your Expenses
Spending money is a part of life. Yet we might be overspending or wasting money in areas we’re not aware of. Consider tracking your spending for a month or two to get an idea of where your money is going.
Use a notebook or an app to record every purchase. You can also use money apps or choose to review your bank statements at the end of the month. Once you can see how you’re spending money, you can adjust where needed.
Set Up Automatic Savings
Even saving $15–$20 a month automatically can make the habit effortless and sustainable.
Take Advantage of Employer 401(k) Matching
You might be sitting on more money than you think. Check with your employer to see what 401(k) plan they have for employees. If they have a matching program, they will match whatever amount you invest. So investing $50 a month can turn into $100 a month.
Build a $1,000 Emergency Fund
Aim for a 3–6-month emergency fund, but if that feels out of reach, start by saving your first $1,000. If you save $250 a week, you’ll have $1,000 in one month.
Schedule an Annual Financial Check-Up
Sometimes speaking with a financial professional, such as a coach or advisor, can make financial planning easier and more effective.
Start Your Financial Planning Today
As you start filling in spreadsheets and reviewing your bank statements, remember to take things one step at a time. Don’t feel you have to get all your financial planning done in one afternoon. Instead, pick one day each month, and block off an hour or two to focus on financial planning.
Small, consistent steps will take you farther than you think.
