Financial planning today provides major benefits tomorrow, and for the remainder of your life.
Regardless of your current income level or personal situation, learn why you must be committed to the following personal finance strategies in order to secure your financial success.
Planning now for your financial future is, quite simply, a smart thing to do. The tools and process detailed here will pave the way for anyone who is serious about conquering their debt and taking control over their financial existence.
Financial planning is how you get from point A to point B, as well as points C, D and E. Depending on where you are financially today, you no doubt have multiple goals that you wish to accomplish. “Hoping” for your luck to finally change, or “waiting” for your ship to come in, is NOT a financial plan – it’s simply a dream.
Most people get into a set routine with their finances. The longer you allow yourself to continue down the same financial road without a clear map in hand, the more you lessen your chances of realizing your financial goals.
Let’s face it, most people are not known for their patience or their planning skills, and even less people are admired for their ability to save money. No one should be surprised to learn this given how the mass media is constantly teaching people in our society to “buy it now- pay later!”
To ensure financial success, people must break away from this destructive, and weak, mind-set.
Do not make the common mistake that financial planning is only for the wealthy, or that you must already have a good sized nest egg before meeting with a financial advisor. Nothing could be farther from the truth.
However, you don’t need to pay out your hard earned money for a professional. The most effective financial planning occurs in the home at the dining room table or home office.
Common tools include the household checkbook, a pen, calculator and a piece of paper with a line down the middle. One column is titled, “Cash Coming In”, and the other column reads “Cash Going Out”.
The main goal to keep in mind is that you want to spend every dollar of your monthly income ON PAPER, before you actually spend it. This way you will plan your expenditures for the month, knowing you have set aside adequate money to cover all the fixed expenses. In addition, you will have thoughtfully allocated the remaining funds to the areas of your life that are most important to you.
Examples of important financial goals might include:
Buying a new car Saving for a down payment on a house Future college saving Dream family vacation Purchase of investment property Planning for retirement years Regardless of what your financial goals are, your chances of realizing those goals are highly dependant upon your decision to plan ahead and your willingness to take action – right here and right now.
There is a great tool available to anyone who is not comfortable with sitting down and creating a household budget on their own. This important tool is called a Personal Financial Statement.
If you’ve ever applied for a loan or credit card, you have filled out the majority of what is found on a personal financial statement. Starting immediately, you can begin using the same process that a lender uses to account for all monies coming in and going out.
Once you have completed filling out a personal financial statement, you will have all the information you need to take the financial planning process to the level – that is, creating a budget that works!
“Budgeting” gets a bum wrap. No one likes to hear the word “budget”; however, it is the process of budgeting (aka. financial planning) that will ultimately set you free and secure your financial future. Too often, people make the mistake of assuming “only broke people have to budget”. The reality is that most rich folks are rich because they budget.
The decisions you’ve made up until now are the reason you are where you are today. The decisions you make today going forward will shape your destiny. The only real question is, “Where are you going?”. Decide well.
By: Richard Gorham
Posts Tagged ‘Nest Egg’
How to Begin Planning Your Financial Future
February 4th, 2010Financial Planning – Time and Teamwork Are a Couples Secret to an Easy Retirement
January 23rd, 2010
Most of us have heard that financial stress and incompatibility are responsible for a large percentage of divorces or unhappy marriages. People have a lot of stories about how it all went wrong but what is important is to know how to make it right.
Financial stress shows up in a relationship when couples spend too much, are heavily in debt, don’t feel secure about their financial future or are not working together. Time and teamwork are the best ally for your finances.
Have you ever received a $320,000 payment? Chances are you have but never knew it.
At age 30 if you received a $10,000 bonus, commission check or inheritance and put it in the stock market earning the average 10% annually, your money would double five times by age 66 and total $320,000. It takes patience, discipline and confidence but the rewards of putting time on your side are worth it. Wouldn’t an extra $320,000 make you feel more secure about your financial future? Some of this money could even be used in an emergency at some point to pay off debt if you made some bad decisions in other areas and became over-extended. Putting time on your side and having a growing nest egg takes a lot of stress out of a marriage. Isn’t that reason enough to do it?
It is really never too late to start.
That same $10,000 received at age 45 is still an $80,000 payment by age 66 or a $40,000 payment if you start around age 52.
Just think what you could have if you invest $2,000 per year? The way to calculate this is by using the ‘rule of 72′. Simply take the average annual return you project on your money and divide it into 72. The answer you get is how many years it takes your money to double. So if you project a 10% return you divide 10 into 72 and your money will double in 7.2 years (72 divided by 10 = 7.2).
Now let’s talk about teamwork.
Couples often argue because they don not feel they have enough money to live the lifestyle they desire. It is essential to come to mutual agreement on realistic expectations. Nothing succeeds long-term without teamwork. Not businesses, teams or relationships. Once financial expectations are set both parties, out of respect for one another need to stay within the boundaries. When one spouse goes outside the boundaries, the other either feels they have a right to do the same or they become resentful and distrusting.
Half the marriages fail in this country. A major reason is because of financial problems. Put time on your side and work as a team and you stand a good chance of getting it right.
By: David Skill
Big Tax Refunds = Poor Financial Planning
January 12th, 2010
You’ve heard this every spring in the lunch room at work. Joe bragging about getting a $1400 tax refund. Jenny tops him with a $2200 tax refund. Then Jack whose wife had a baby during the year and bought a new house tops them all with a $3100 tax refund. Over in the corner smiling to herself is Joan who had to pay an additional $120 in income tax. With all the others getting big tax refunds what is so special about Joan’s situation?
And why was Joan smiling? Well because after last years $2000 tax refund Joan and her husband decided they didn’t want the government holding their money for the better part of a year and they earned nothing on the funds. How could they tune-up their investing and saving plans so they did in fact earn something on the prospective tax refund? Importantly, they wanted a plan so their earnings would compound and over time they would have a comfortable nest egg with the annual tax refund.
Their first step was to review their savings and investing plans. They found that Joan was not contributing enough to her 401k to get the maximum company match. So she increased her 401k contribution from 3% to 5%. The gross cost on her $40,000 annual salary was $800 but since it reduced her taxable income by $800 her net cost was about $680. The company matched 50% up to 5% so the company added $400 to her account. Not bad investing $680 and increasing the amount invested by about $1200.
Joan’s husband was contributing 6% in his company’s 401k plan and was getting the maximum company contribution of about .60 cents for every $1.00 invested.
They decided to start Roth IRA’s with the balance of the prospective tax refund. Although there was no immediate tax benefit, the investments would grow over time and as they got raises they could increase the amount invested until they reached the allowable yearly maximum. The big benefit would. be after age 59 ½ they would pay no income tax on any withdrawals from the Roth IRA.. So in the first year, they had $120 a month automatically deducted from their checking account, with $60 allocated to each Roth IRA. So in one year each Roth IRA was funded with $720. An additional benefit of the Roth IRA was they considered them an emergency fund as there was no penalty for withdrawing the funds.
Now you ask where did they get the money to fund the Roth IRA’s and the added contributions to the 401k? After some calculations they submitted new W-4 tax withholding forms. They increased their deductions to equal the amount of the anticipated tax refund. Now their take home pay was increased, but with the extra 2% (before tax so the real cost was about 1.70%) for Joan’s 401k and with the $120 a month automatically deducted from their checking account to fund their Roth IRA’s their collective take home pay stayed about the same.
But look what they accomplished. A 401k with an additional $1200 invested and Roth IRA’s
with an additional $720 each invested for a total of about $2620. All instead of a tax refund of about $2000. And the investments will continue to grow and compound. When asked if she missed the big tax refund Joan said, “I don’t even remember what we did with the tax refund last year. I think we paid some bills and went out to eat a few times and it was gone. I’m real happy with the change.”
What about you? Which group are you in the lunch room? It’s never too late to take control of your tax refund. Consider turning it into a long term benefit rather than the one time windfall. After all it’s your money and your future.
By: Andy Andersohn