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Financial Planning Basics

| January 30, 2019

Tips for financial success

Financial planning is not as difficult as people make it out to be.  The difficult part is doing the things you know you should be doing.  Similar to a diet or fitness plan, it’s the follow through that is more challenging than the planning itself.  In today’s world of google research and social media everyone has access to information at their fingertips, but the challenge is understanding exactly what to do with it.  Where do you start, how do you prioritize your needs and goals, and finally and most important who can you trust.  So I am going to make this process a little easier for you.  I want to lay out a handful of tips for anyone to get off and running with a financial plan. 

  • Save $1000 in a savings account.
    • This sounds simple right, but yet I meet with folks all the time that have no emergency savings in place to take care of the things that always pop up. They wonder why they have credit card debt all the time and why they can never seem to get ahead.  If you cant save a $1000 in a personal savings account, you probably don’t need to read any more of this article, but if you can keep reading.
  • Start with the worst case scenarios first.
    • What do I mean by worst case scenarios? I am talking about the things that can change your life in an instant.  Things like you getting a car wreck and not being able to come home to your family due to death or not being able to go back to work do to injuries sustained.  Even worse if you don’t have the right health insurance in place can you afford your medical care.  Finally, if the accident is your fault do you have the right amount of liability protection to keep your assets safe.  I could go on about each of these areas in detail, but the point is you better have insurance protection for life, disability, health, and home and auto insurance in place to make sure if your life gets thrown a curve ball you can adequately protect your family.
  • Save money, save money, save money.
    • After you have your worst case scenarios protected you need to start saving money as often as you can. Depending on the type of job you have you will want to save 3-6 months worth of expenses in a savings account.  The more stable your paycheck the less amount of months you need to have.  For example if I am a fully commissioned sales rep I will want to work towards 6 months of expenses in a savings account versus a teacher who gets paid every month who can get away with closer to 3 months expenses.  Once you get your savings adequately built you will want to start savings for retirement.  There are tons of ways to save for retirement, but here are some basic rules to follow.  Take full advantage of any free money (company match dollars) you can access.  Once you do that consider funding a Roth IRA for the flexibility and tax advantages it provides.  Once you have fully funded a Roth IRA you can consider going back to your company retirement plan and funding more into that.  A target funding requirement can be anywhere from 6 to 44% of your earnings depending on your goals so making sure you understand your needs is extremely important in this stage of planning.
  • Fund your retirement before your kids education.
    • So many times I find people funding their kids college education plans and completely neglecting their retirement plan funding. Here is a question for you.  When was the last time you heard of someone borrowing money to fund their retirement lifestyle?  You haven’t and you never will.  As important as that goal may seem, the reality of the situation is you can borrow money for college education so make sure you are saving for your retirement first before taking on the daunting goal of saving for your kids college education.  If you do save for their education set a goal number, achieve it and get back to retirement funding.
  • Secure guaranteed lifetime income streams in retirement.
    • The happiest people in retirement are those that have a paycheck show up in their bank account every month for the rest of their lives and don’t worry about running out of money. We make it simple for our clients.  What are your monthly expenses?  Now lets secure a guaranteed monthly income stream to cover those expenses to the best of our ability.  Take the rest of the money and invest it for the long run for inflation protection.
  • Maximize Social Security.
    • The most under utilized tool in the retirement planning world today is the maximization of social security. Where else in the world can you secure an 8% guaranteed growth of an income stream by waiting an extra year to turn it on?  Nowhere is where.  We tell our clients to use the funds they have in their existing retirement plans and defer starting their social security as long as they can so they can secure a higher monthly benefit for the rest of their lives and even better when one spouse dies the other spouse gets to the keep the higher of the two benefits.  There are lots of planning strategies that can be utilized with social security, but make sure you are maximizing your benefits.
  • Have a plan for long-term care.
    • The biggest hole we see in financial plans today is the lack of a plan for long-term care needs. Some people buy traditional long-term care insurance, some people buy hybrid plans that include life insurance along with some long-term care benefits, and some people set aside funds to address those needs if they arise.  Most people however, do nothing and simply hope they don’t have to worry about it.  These are the folks that I worry about.  We tell folks all the time that you don’t have to buy insurance, but we need to at least have a plan of how we are to fund these needs which are often times projected to be well about $750,000 for 4 years of care 20-30 years from now. 
  • Maximize your family interest and minimize the IRS interest in your money.
    • Unless you are particularly fond of someone who works for the Internal Revenue Service why would you want to give an unfair amount of money to them? I am not saying don’t pay your taxes, I am saying do everything in your power to minimize their interests in your family’s money and pass your assets to the generations that follow in an efficient manner.  There are tons of strategies to do this, but do everything in your power to minimize your tax consequences in retirement years and upon your passing away.
  • Work with trusted professionals.
    • I ask all of our clients a simple question. Do you have the TED?  Do you have the Time, do you have the Expertise, and most importantly Do you have the Desire to manage your own financial plan?  I strongly believe that if you can honestly answer these three questions with a yes you may not need a trusted advisor, but if you have hesitation or answer no to any of these three you need to find a trusted advisor to work with.  There is so much information out there today on how to save for retirement, which insurance you should buy, how to get rich quick that people get lost and confused very quickly.  I always say if my toilet is broke I could probably watch enough YouTube videos, and read enough articles to get it fixed, but I wont do that.  I will call the local plumber and pay them to fix it, because they know what they are doing and wont mess more stuff up then what they are trying to fix.  Pay a professional and feel confident in your plans.
  • You have to care more about your situation than anyone else does.
    • It amazes me how little people seem to care about their futures when it comes to money. The reality of the situation is no one can care more about your outcomes than you.  If you want to be able to do the things you have always dreamed of doing you have to do the work to make those realities come true.  Miracles rarely happen in the financial planning world.  Long-term goals happen over the long-term and the earlier you start the better chance you have of making those goals come true.  I heard a long time ago that people spend more time planning a family vacation each year than they do reviewing their financial plan.  Wouldn’t it be nice to have a financial plan that allowed you to take whatever vacation you wanted to so you didn’t have to work so hard at planning it. 

There you have it folks.  Ten tips to help you get on track to successful financial future.  Take advantage and apply some of these tips to your world today and go BE GREAT!!