How a Financial Plan Can Help Your Money Management Goals

The concept of money management, like the concept of good health, has both short term and long term aspects. What you do today affects your long term outlook, and what you do long term affects day-to-day living. Money management requires both short term and long term thinking. Generally, short term money management involves budgeting, while long term money management involves financial planning. One is about tactics, while the other is about strategy.

Differences Between a Financial Plan and a Budget

Financial planning is a long term endeavor, and while budgeting should be something you do regularly (like brushing and flossing your teeth), it's more concerned with immediate actions. Financial planning involves identifying a goal and the general direction to take to pursue that goal, while budgeting is an everyday tool that, used regularly, helps you reach the goals in your financial plan.

Suppose your goal is to set aside money for retirement. Financial planning is the approach that helps you determine how much money you need to set aside based on your current age, expected retirement age, and the number of years you can expect to live after retirement. Your financial plan for retirement can tell you how much money you should set aside each year to reach your retirement goal.

Your budget, with respect to your plan for retirement, gets you into the nuts and bolts of setting aside the money. This may involve changing everyday spending habits, setting up automatic deductions from your paycheck to go toward your 401K plan or IRA, or reallocating how 401K funds are invested based on market research and how many years you have until retirement.

Next step: Sign up for Mint and explore our tools for budgeting and financial planning.

Steps in Creating a Financial Plan

Missouri State University has a great primer on creating a financial plan. It defines the basic steps of creating a financial plan as:

  • 1. Determining your present financial situation
  • 2. Identifying financial goals
  • 3. Learning about alternative courses of action
  • 4. Evaluating your choices
  • 5. Mapping out and implementing a financial plan of action
  • 6. Periodically reviewing and revising your financial plan

When it comes to financial planning, it is never too early to start. If you're fresh out of college with your first full-time job, the benefits of financial planning and money management now cannot be overstated. The simple combination of time and compounding put you leagues ahead of the person who waits until age 35 or 40 to take money management seriously.

Steps to Creating a Budget

Creating a budget, at its simplest, involves three things:

  • Tracking your spending
  • Knowing how much money you have coming in every month
  • Knowing your spending obligations every month

You can use online tools like Mint to do all of these things, and furthermore, you can use Mint to help with your financial plan as well, using easy investment tracking to be able to check whenever you want to whether your investments are performing as you expect them to.

How a Financial Plan Helps Budgeting

Your financial plan is a terrific motivator for budgeting. When you know you're putting spending under a microscope so you can send your child to college, you're more likely to do the work of budgeting and smart money management. Keeping your financial goals in mind can be just what you need to stick with budgeting when you hit a financial rough patch, or when an unexpected expense catches you by surprise.

How a Budget Helps Financial Planning

The journey of a thousand miles begins with a single step. All those steps you take in your regular budgeting practices add up to sound money management. When you create a budget, check it regularly, and review your habits and progress toward goals, you help ensure your kids can go to college without crushing student loan debt, or that you can retire without worrying about making ends meet. The budgeting you do today feeds your financial goals for tomorrow.

Money management requires both a short term and a long term view. Short term, managing your budget can help keep everyday financial stresses to a minimum. Long term, having a financial plan supported by consistent budgeting ensures that whatever your big financial goals are, you move toward them and don't lose sight of them.

Mint can help you with both these aspects of sound money management. Budgeting tools help you track spending, remember bills, and take those small regular steps (like putting $50 from every paycheck into an IRA) that make it possible to fulfill your financial plan. Investment tracking and tools that help you set specific financial goals like making a down payment on a house put you on the path toward the financial security and freedom you want.

Next step: Sign up for Mint and explore our tools for budgeting and financial planning.