How to make a financial plan and grow your wealth

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It can be hard to think about making a financial plan when keeping up with monthly expenses is already a challenge. For most of us, building wealth doesn’t happen overnight. It’s a slow process that can take years—but it’s worth it. 

Financial planning for the future is the one of the best ways to stop living paycheck-to-paycheck and put yourself on the path toward stability and prosperity. For many of us, it’s the only way to get ahead. Here’s how to get started.

Start planning for the future

To start planning for the future, the first thing to do is understand your current finances. Add up your monthly income, bank account balances, and any other valuable assets you own, such as a car, or even expensive antiques like jewelry. This is your personal wealth. 

Next look at the money you owe. Add up any loans or debt you have, including credit cards, car loans, mortgages, and student loans. Now subtract the money you owe from your personal wealth. This number is your net worth. 

You may find that you have a negative net worth. But don’t fret, many people are in the same situation. It doesn’t mean you’re doomed by any means, but rather you just have a little farther to go. 

Track monthly income

After you understand your net worth, go back to your monthly income and compare it to your monthly expenses. Look at how much money you make every month compared to how much you spend every month. 

Try to get your monthly expenses lower than your monthly income. It may not be easy at first, and it can take time. 

When determining the areas where you can cut spending, it’s important to take a hard look at your expenses. Which do you need to pay? Which can you do without? You have to pay rent and utilities, but most of us can do without that new TV or pricey vacation.

Try to reduce the monthly expenses that are not fixed. Doing so will increase the gap between your monthly income and your monthly expenses. The larger that gap is, the more money you can save every month. 

When it comes to properly tracking your monthly spending habits, putting together a monthly budget is vital. 

Set a goal 

Growing wealth requires a long-term mindset, so it’s important to think in years, not months. The next thing to do is set a goal for your finances. How would you like your finances to look in 5 years? How about 10 years? Is it a realistic goal? 

To make a financial plan that works, it needs to have direction. When brainstorming your future finances, ensure it makes sense with your current lifestyle, your goals in life, and the needs of your family. 

The goal you set for your finances will help shape the path you take toward building wealth.

Save money now 

The time to start saving money is now. Try to make saving a regular habit—like brushing your teeth or getting up for work. 

It can be smart to use an autosave tool if you want to simplify your saving process without having to think too much about it. If you know how much money you can safely save every month, you can set up an automatic transfer from your checking account to your Varo Savings Account. 

Avoiding unnecessary spending can be an added benefit here, as once the money is already in your savings account, you may be less tempted to spend it. If you’re trying to save money, you’ll need to live within your means. Try to find less expensive ways to buy the things you need, such as buying used instead of new to spend less.

Where to put your savings for long-term goals 

Once you have some money saved up, it’s time to put it to work. When saving for the long-term, you probably want to find a place to put your money that’s both safe and beneficial. 

Safer investments don’t earn as much, but that’s ok—we’re in it for the long haul. Here are a few wealth-building tools that can grow your wealth slowly and safely. But keep in mind almost everything in finance comes with at least some risk.

• Savings Accounts:

   

  A savings account is usually the safest place to put the money you’ve saved. While it may not pay as much interest as other methods, it’s secure. Varo’s high-yield

   

  Savings Account

   

  offers an initial 3% Annual Percentage Yield (APY) that is much higher than most other banks. It also has no fees and comes with easy auto-saving tools to help grow your money.

• Retirement Funds:

   

  If your employer offers a 401(k) retirement account, it’s a good idea to use it, especially as employers generally match a certain percentage of your contributions. If your employer does not offer a retirement account, check out a Roth IRA, which is an individual retirement account where your money can grow tax-free.

• Asset Investments:

   

  Some people decide to invest their money in assets, but these are usually riskier than the first two options. You can buy company stock or assets like precious metals to potentially get a return on your investment over time. 

Building wealth is a marathon, not a sprint. Don’t worry if you’re not saving a large amount at first. The important thing is to reframe your savings mindset, put away a little every month, and watch it grow. If you think about your financial plan in years instead of months, then little by little, you can start to make progress and plan for a brighter future. 

Unless otherwise noted above, opinions, advice, services, or other information or content expressed or contributed by customers or non-Varo contributors do not necessarily state or reflect those of Varo Bank, N.A. Member FDIC (“Bank”). Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s) other than Varo.