Financial plans and budgets can help you be financially successful now and in the future. Yet, while the two go hand-in-hand, they are not the same. Here are some key differences to help you distinguish between your budget and your financial plan:
Where you’re going vs. where you are today: While a budget helps you map out your key expenses and plan for the weeks and months to come, a financial plan allows you to set a course toward funding financial goals that are 5, 10, or 20 years down the road. A good financial plan may address your income and expenses, taxes, insurance, estate planning, retirement, education needs, and other topics.
Strategies vs. tactics: Creating a financial plan requires building a long-term strategy for getting you where you want to go, while building a budget means money management for the day-to-day. However, having a grasp on how much money to budget once your expenses are paid lets you know how much money can be put toward the goals defined in your financial plan.
Long-term vs. short-term: With a financial plan, you typically track your progress on a quarterly or semi-annual basis. With a budget, you record your income and expenses on a weekly or monthly basis. Generally, the closer you stick to your budget, the more progress you will make on your financial plan.
Think about the things you want to do in 10, 20, or 30 years, and what steps you would have to take to reach those goals.
By understanding how your budget and financial plan work together, you can stay on the track to financial success.
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