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Bulletproof Financial Plan

How to Make Your Financial Plan Bulletproof

Managing money has become increasingly difficult with rising global instability. The stock market has become highly risky as a result of global crises such as war and pandemic. Inflation is at an all time high and experts expect the prices of goods to rise further. All of this necessitates the need for a bulletproof financial plan that will allow you to weather the storm whilst enabling you to prosper.

A bulletproof financial plan is one that enables you to both safeguard and grow your assets. It ensures that you are protected in times of economic crisis.  The following are some actions you can take to develop a bulletproof financial plan:

1. Make a Budget

This is the most crucial step in any financial strategy. It involves deciding how you will spend your income. Expenses, savings, and investments are the three avenues where income would be spent. The amount of money you assign to each category should be based from your personal experience. 

According to certain experts, the 50-30-20 Rule should be followed. The 50-30-20 rule suggests that you should assign 50% of your income to needs, 30% to wants, and 20% to savings. Needs are the essential expenses that you require for your survival. These include paying bills, fetching groceries, paying rent, etc. Wants are the expenses you make to purchase the things you desire such as new mobile, movie outings, leisure travel, etc. Your goal should be to limit your spending on wants as much as possible while increasing your savings.

Suppose your monthly income is $10,000. According to the 50-30-20 Rule, you should allocate $5000 for Needs, $3000 for Wants, and $2000 for Savings. You can invest a part of the savings to grow your wealth. The more money you put aside towards savings and investments, the sooner you’ll be able to reach your financial goals.

50/30/20 Rule

2. Diversify your Investments

In today’s volatile markets, investing in a single asset would make your portfolio highly vulnerable. Let’s assume you’ve invested more than 80% of your money in the stock market. As a result, a stock market crash would wipe out most of your wealth and make it difficult to meet your financial goals.

You should diversify your portfolio by investing in multiple assets such as gold, debt securities, stock market, government bonds, etc. This ensures that a fall in one asset will not have a significant impact on your overall portfolio. Each investment option has its own set of advantages and disadvantages.

For example, gold, debt securities and government bonds are considered highly safe in comparison to stock market investments. On the other hand, the stock market more than makes up for the risk by providing a higher return than other investments. You should diversify your portfolio based on a variety of factors such as the amount of investment, your risk appetite, expected returns, and your age.

Investing in new areas carries a higher level of risk. Before investing in such areas, you should conduct your own research or seek advice from a finance expert.

Financial Planning

3. Having Emergency Funds

You should have at least 6 months’ worth of salary as emergency funds. This will help you get through tough times when you’re low on funds.

https://www.youtube.com/watch?v=SJd6S_t6x1U

 

4. Purchasing Insurance

You should get health insurance along with insurance for other important assets like your car, life, and other valuables. Purchasing insurance will protect you, your loved ones, or your assets against unexpected events.

5. Debt Free 

Liabilities are the obligations that you owe to others. Some examples are rent, loan payments, and credit cards. As a part of your monthly income would be tied up in paying such liabilities, your potential to generate wealth would be limited. Your ultimate goal should be to become debt free as soon as possible.

Debt Free

6. Increasing Sources of Income

Most of us rely on a single source of Income to meet our expenses, which is Salary. However, only a few of you may know that there are seven sources of income: Profit Income, Rental Income, Earned Income, Interest Income, Dividend Income, Capital Gains and Royalty Income. Inflation will rise each year. As a result, you should focus on increasing your income and diversifying your sources of income. This will enable you to reduce dependency on a single source of income and achieve financial freedom faster.

It may sound easy to you to expand your sources of income. However, you may be required to spend a considerable amount of time and money for these sources to generate a significant amount of wealth. When it comes to generating wealth, patience and discipline is the key.

All of these steps do not require you to follow them actively. In short, you can automate your financial plan by following the key steps. Also, you should create room for improvement depending on the market conditions.

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