Financial Planning Chat

Managing your personal finances can seem like a daunting task at best. Don’t despair. There is hope for your future and your finances. You just need a plan. There is a saying among many financial advisors that “if you fail to plan, you plan to fail.” There is no need to go through life wondering what will happen a few years from now or once you reach retirement. With a plan in place, success is much easier than it seems.

Even if you find yourself only a few years from retirement, it’s never too late to begin working toward a better future. But the fact remains that the earlier you start, the better. If you really want to actually retire when you reach retirement age, you can’t just expect it to happen. You must know how you’re going to get there.

The first step to making this happen is to take an inventory of your current situation and develop a budget. You absolutely must put pencil to paper and then put your plan into action. There is really no other way to be successful.

Create a budget by looking at what expenses are necessary and what you can cut from your spending. A great tool for anyone wondering where to start is a percentage budget. On a percentage budget, a given percentage of your income will go to your house payment, to your utilities, to your insurance, and so on. It gives you a good idea of what you can actually afford and where your money should be going.

Once you have a budget in place, it’s time to start planning your future. There are so many investment options to grow your money that it may be mind-boggling at first. While you are in the planning stages, it may be a good time to develop a will and think about the important things you need to have to ensure your family is well taken care of. Everyone should have a good life insurance policy and plan for other types of insurance that may become important, such as long term care plans.

Finally, find a good advisor to help you put your plan in place and invest wisely. You have a number of good options, but some have a better return than others. And even more important is your individual situation. There is no black and white strategy for investment. Some may find saving in options such as IRA’s and 401(k) plans provide for the best return, but it all depends on what you are saving for and why.

The key is to find an expert in the field and let them guide you, but always remember that you have the final say and you need to be comfortable with your plan of action. Just remember that your future does not depend on luck. It depends on you and your determination to make it happen!

Over and over again we hear about the importance of financial planning.  We are encouraged to have an emergency fund equal to at least six months of living expenses.  We are panicked because the retirement accounts just aren’t growing larger at the same rate we are growing older, and sometimes it seems that we’ll never be able to stop working.

For some people, financial planning seems to come easy.  We read about 30-year-olds who could retire today.  We hear about a young couple who paid off $60,000 in credit card debt in three years. And then there are the rest of us.  There is financial planning advice around every turn, offering an “easy” way for us to save a million dollars in time for retirement.  Experts preach of a pain-free way to pay off tens of thousands in credit card debt. 

The fact is that many people have no savings at all.  For some, every dollar goes toward paying back debt, and there is nothing left over to save.  For this group, the goal of trying to accumulate six months worth of living expenses seems unattainable.  The thought of saving for retirement also becomes overwhelming.  Financial planning is just too much to think about.

There is hope, however, for those who are serious about paying off debt and saving.  It doesn’t take a new, higher-paying job, or a winning lottery ticket to set you in the right financial direction.  All it takes a new way of looking at money and a good amount of discipline.

Make a List

Before you can figure out where to cut corners to boost your savings, you have to know exactly where your money is going.  Most financial experts will agree on this point. The first step is keeping a spending journal.  It’s a bit of a hassle, but it will be worth the trouble when you can see in black and white where every dollar is going. 

“I couldn’t believe that I had spent $1200 on Starbuck’s last year,” said Georgia Parish.  “Once I saw that on paper, I cut out my daily coffee stop. Instead all of that money goes to savings.” 

It doesn’t have to be about denying yourself your favorite treat, but getting it all down on paper will help you analyze your spending and make decisions about what you are willing to do without.  Once you make a decision, stick with it.  If you are in debt, use half of this “extra” money to pay down debt and put half in savings.

Another benefit of keeping a spending journal is that you will become accountable to your spouse.   Remember that it’s not about pointing fingers and assigning blame.  Your marriage is a partnership, so work together to meet your financial goals.   Don’t cause your spouse to become defensive, because that will make it harder to be honest about finances in the future.  Discuss your savings goals, and then figure out changes that both of you can make in order to make it happen.

Start Small

Don’t worry about having a savings account with six months worth of living expenses.  The fact is that, for many people, that goal seems too lofty.   When the goal seems unreachable, it’s easy to not even bother trying.  Savings accounts grow one dollar at a time.  Start with a small goal, and watch how fast your savings can increase.

“There was a special at my bank where we could open a CD with only $100 dollars,” said Cathy Miller.  “We set it up and authorized a small automatic deposit to the CD each month.”

Miller’s short-term goal was to have $1000 in savings.   At the end of the first year, her CD was worth over $1300.

“We didn’t even miss the money,” she said.  “And now we are excited to see how large our savings account can get.”

The Miller’s, once intimidated by the thought of financial planning, are now motivated to save.  And it started with just $100.

Financial planning does not have to be a frightening proposition.  No matter what your income or debt level, you can grow your savings.  Just make a plan, stick with it and watch those savings grow.