Financial planning can be an anxiety-inducing topic, but with some research and a willingness to learn, many facets of it can easily be understood and implemented. These principles can then be applied to help you secure your financial future. In recognition of Financial Planning Day and National Retirement Security Month, United Bank & Trust is sharing eight tips to help consumers of all ages improve their financial planning skills.
It seems like common sense, but the only way to save money for your goals is to spend less than you bring in. For many, spending gets out of control when constantly swiping credit and debit cards without checking account balances. Instead of trying to dig yourself out of a hole of debt, carefully consider your income and purchases and choose a plan that works for your lifestyle.
First, determine how much you make during a period, whether that be weekly, biweekly, or monthly. Then calculate how much your “needs” cost – things like rent, utilities, groceries, and minimum debt payments. After that, calculate how much you have leftover to contribute to savings and to spend on “wants.” If your spending calculations are larger than your income, you’ll need to cut back on spending, or try to find ways to increase your income.
Once you’re successfully spending less than you’re making, it’s time to begin building your emergency savings. Experts generally recommend that consumers save three to six months of their regular expenses to maintain their current lifestyle. For example, if you’re currently spending $3,000 per month to live comfortably, your emergency fund goal should be $9,000-$18,000.
- Pay down high-interest credit card debt.
Paying down high-interest debts is the first step of the debt payoff process. If you have extra money left over each pay period, tack on this extra to the minimum payments on your high-interest debts. This will help you save money on interest while paying the debt off faster.
Once you’ve paid off high-interest debts, you can work on other debts with lower interests. In the future, it’s a good idea to avoid high-interest debts entirely. If you’re going to use credit cards, spend only what you can afford to payoff each month, so you’re not charged with high interest rates each month.
It’s challenging to save money without intentionally working towards a goal. Consider your future, and what you want in your life. Do you want to own a house? Start a family? Buy a new car? Whatever you desire, determine how much you need to save to make the dream a reality, and create a plan to save the money within a realistic timeframe.
If you have several financial goals you’re pursuing simultaneously, ensure you’ve identified a primary goal. If you want to clearly separate each goal, consider opening several savings accounts to easily organize them.
- Regularly check in on retirement savings goals and projections.
It’s crucial for consumers of all ages to contribute to their retirement savings even when working towards other goals like building an emergency fund or paying down high-interest debts. If you’re at the beginning of your working career, it’s important to begin saving for retirement as soon as possible to maximize your money’s potential to grow throughout your working career.
As you hit milestone ages, it’s a good idea to check in on your retirement savings and determine whether your retirement saving habits need to change. For more information about planning for retirement, check out our articles “How to Redefine Your Retirement in Your 50s” and “Enjoy Retirement Without Financial Stress: Budgeting for Fun and Leisure.”
- Check your investment mix.
When you’re reaching milestone ages and checking in on your retirement, it’s also a good time to analyze your investment mix, whether it be in your retirement accounts or other non-qualified accounts. Your investments likely include a mix of stocks, bonds, and cash.
Stocks. When you buy a stock, you become a partial owner of the company. If the company is doing well, you will likely profit; the opposite is also true if the company isn’t doing well. Stocks are a riskier investment designed for growth in the investor’s portfolio.
Bonds. When you buy a bond, you loan money to the issuer, and the issuer promises to repay the bond by a specific date. In exchange for giving the loan, you receive regular interest payments. Bonds are designed for income and stability in the investor’s portfolio and are suited for investors with less risk tolerance.
Cash. Cash includes investors’ money market accounts, certificates of deposits, and savings accounts. Cash is intended for use in short-term emergencies, as there’s very little risk associated with keeping cash on hand.
The balance of these assets depends on three factors: 1.) your financial goal, 2.) your time frame for needing the money, and 3.) your risk tolerance. Analyze these three factors and talk to a financial professional for further help balancing your investment mix.
Estate planning, like financial planning, can be an overwhelming topic to tackle, but the two go hand in hand. And while many people think estate planning is solely for senior citizens, it’s for people of all ages. If you have assets, you have a reason to put an estate plan in place.
Start by taking inventory of your assets. Consider any tangible assets (real estate, vehicles, collectibles, etc.) and intangible assets (checking and savings accounts, investments, life insurance policies, retirement plans) you may own, and determine how you’d like them to be dispersed after your death. Once you’ve taken a full inventory, put the proper documents in place so that your wishes may be fulfilled after your passing.
The first document you create should be a will, which will include designations for many of your assets, and other important things like guardians and contingent guardians of your children or pets. Other necessary documents may include a trust, a power of attorney, or a medical care directive. Talk to a lawyer or financial professional to help decide what your next steps of estate planning are.
- Work with a wealth advisor.
While many steps of financial planning can easily be managed independently, others, like retirement and estate planning, require a bit more professional assistance. Visit with a wealth advisor to help you with your financial planning journey, regardless of the stage of life you’re currently in.
Financial planning is an important skill for people of all ages. Visit United Bank & Trust’s website or call us at (641) 753-5900 for more information.