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Financial Strategies
Financial Planning Is Your Roadmap
By Rosemary White
Financial Planner, Strong Financial Group
I know that many of you, especially if you're self employed, don't
always stick to a plan when it comes to managing your finances. You may
be contributing to a retirement plan, but otherwise, your finances often
seem haphazard.
I believe virtually everyone can benefit from some financial planning.
Whether you want to get married and have a family, need to save for
college or want to retire to a warmer climate, you are much more likely
to reach your goals if you have a plan in place.
But where to start? Think about what you want to accomplish in life
both before and after retirement. For many of us, retirement may last
25 to 30 years.
Here's a financial planning primer to help you get on track:
Assess Where You Are Today
It's always difficult to balance our work and personal lives. Finding
the time to plan for your financial future can sometimes seem daunting.
Start out by gathering and organizing your statements, etc. The
sooner you begin this process in your life, the easier it will be to
reach your financial goals. Pull together your bank statement(s), any
investment statements, etc. Don't forget your credit card bills, your
checkbook and paycheck stubs. (You should also have 3-6 months of
expenses set aside as an Emergency Fund.) You can subtract your debts
from your assets to determine your Net Worth.
To calculate your Cash Flow, complete a worksheet that lists your
income and all your monthly expenses. Don't forget items like your
monthly cost for insurance, taxes, utilities, child care, auto and
public transportation expenses, retirement savings, credit card
payments, etc.
Saving regularly should be a priority. After paying your mortgage or
rent, paying yourself should be next. Once you get in the habit, it
will become second nature, and you'll be pleased as your savings grow.
Where Do You Want to Be?
Have you thought about where you want to be in 10, 20 or 30 years? If
you want to own your own home, what are you going to use for a down
payment? If you have children, how will you pay for their college
education? Will you be able to retire early? Or will you have to work
into your '70's? These are some of the big ticket items that all of us
think about. But just thinking won't help you get where you want to
be.
Before you can put money aside for your long-term goals, make sure your
cash flow is sufficient to cover your monthly expenses. If there is
money left over after your bills are paid, then you need to prioritize
your long-term goals. Most likely, you'll buy your home and your kids
will start college before you retire. How much do you need to save each
month to reach your different goals? Can you save for multiple goals
at once?
Investing to Reach Your Goals
One thing that's universal when it comes to meeting your financial
goals: making your money grow.....Capital Appreciation. The amount of
time you'll need to achieve the goal, the amount of money you can save
over time, and the rate of return you expect to receive are all
important factors when investing. Different goals have different time
frames.....you can take more risk when investing for retirement (if
that's a long-term goal) than you can if saving for a down payment.
Diversification is another important concept, particularly when
investing long-term. When saving for retirement, for example, what
percentage of your investments are in stocks (or stock mutual funds)
versus bonds (or bond mutual funds) and cash? You might also want to
consider answering a risk questionnaire to help you determine how
conservative or aggressive you can be when investing. There is risk
associated with most investments. Taking the proper amount of risk can
be one factor in determining whether you will reach your financial goals
or not.
As you become a more experienced investor through the years, you may
also find that you want to take less risk as you get older. Less risk
in your portfolio may help preserve your next egg so that more of it
will be there when you need it
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