Financial Planning Tools: Getting Your Ducks in a Row
I think high schools should teach the importance of financial planning, beginning with your very first part time job. It is a strange thing to think about when you are so young, but the reality is that the younger you are when you begin thinking about it, the more prepared you are likely to be. Most of us put off these decisions and important discussions because retirement is a long way off, isn’t it? From where we are sitting, all a 401k contribution does is make your weekly paychecks noticeably smaller, and we need every penny we can earn. The fallacy in that thinking is that you are going to need those pennies more, later. The sooner you begin thinking about your financial planning, the less you need to scramble and worry about it later.
Coming up with your own financial plan can be a little overwhelming to think about all at once. There are so many factors to consider, and so many different options. It makes your head spin. Don’t let that initial confusion drive you away from what is ultimately a very responsible course of action. With just a little introductory information, and a little guidance, you can be well on your way to lifelong financial security. Let’s take a look at a few tools you can use to help determine how best to come up with your own, unique plan.
If you are staring hard at the words “retirement planning”, you are probably in one of two situations: 1.) A young person who just heard that you have to select retirement contribution options for the first time, and are unsure of how to proceed, or 2.) An older person, approaching retirement a little quicker than you had realized, and are now scrambling a bit.
Retirement is supposed to be fun. It is your reward for a lifetime of hard work and dedication to your job. It should not be continually shadowed by the looming threat of financial ruin. With that in mind, Udemy had a great step by step guide on how to come up with your personal retirement plan (it’s free!). It will walk you through how to reconcile things like your savings, your age now, and your expected retirement age. Determining ahead of time whether or not you have enough saved is the first step to enjoying your hard earned retirement in comfort, and without unnecessary worries.
Getting Out of Debt
It seems like everyone you talk to is in the process of paying something off. Whether that something be their car, their house, or their education, many people are receiving their pay checks every week, knowing that a large portion of it is already owed somewhere else. Debt is a like a slow leak in a life raft. While it is so prevalent now that we just consider it a way of life, there is reason to be concerned if the debt you carry is staying the same, or even increasing over the years – not going down.
Learning how to get on top of your debt, or better yet eliminate it all together, is a crucial step in your financial planning. Learning from an expert in this area will open your eyes to how this can be accomplished. While many of these numbers might feel insurmountable, remember that it may only be a matter of a concentrated budget plan, and a little focus on your part to knock your debt down completely.
Every dollar that you owe is subject to interest fees, and penalties. Ridding yourself of these potential monetary pitfalls is so important if you eventually want to gain financial independence.
Understand Your Life Insurance Options
Nobody wants to think about life insurance, because the subject matter is pretty grim. Still, that should not be a reason to avoid this important financial discussion with your family. If you are the primary or sole income provider for your family, you must begin thinking in terms of the unthinkable. What would happen to the family you leave behind? Would there be a mortgage to pay off? Child care costs? Is there other debt that would suddenly come due?
Life insurance is a relatively inexpensive monthly fee which helps shore up your family’s financial situation in the event something terrible were to happen to you. It is a means of adding wealth to a family in an emergency, and understanding how life insurance works is an important part of any financial plan.
Understand Your Mortgage Situation
How close are you to having your home paid off? Is there any possibility of an early payoff? If your monthly payment subject to change unexpectedly for any reason? Is there any equity in your home right now?
Being able to answer these questions is an important step in your financial planning. For most families, the single largest purchase they will ever make is their home. For those who purchased a home later in life, the prospect of a 30 year mortgage might mean those monthly payments will spill over into the retirement years, and you will need to make sure you can afford those payments on a fixed income.
Unexpected situations like disability, property tax reassessment, and major home repairs can all sneak up on you, so it is especially important to understand what your options are in the event of an emergency, and have contingency plans in place. Mortgages can also be a source of income as well, so speaking to a professional will help you greatly.
Learn How To Invest
Investing your money is simultaneously one of the best and riskiest things you can do for your own financial growth. Making sure you have a good grasp of what investing means will help build your confidence and allow you to make smarter choices.
Growing your money through investing is one of the best ways to close some financial gaps. Learning where to start, and how to properly build and maintain a portfolio will allow you to take advantage of this source of income, whether you are already retired, or not. Even a small amount of money invested can yield great returns, not to mention help build your confidence as a new investor. Don’t be afraid to begin with only $100 here or there. That can actually be an excellent way to learn the ropes of investing without the fear of losing a large sum of money on an ill advised gamble.
Get a Hold of Your Healthcare Situation
This past year has seen some dramatic changes in healthcare. Some of these changes may have effected you very little, while others might have had a huge impact on your monthly costs. Taking the time to sit down and come up with a plan regarding healthcare costs can help you sidestep some potential issues, before they become problems. Look for ways to lower costs, while at the same time be realistic about what healthcare will cost you five years down the road. What about 10 years? 20 years?
Having a plan in place to cover your healthcare costs as you age is extremely important, and sometimes an overlooked aspect of financial planning. Our health situations can change suddenly, and the last thing you want is money standing in the way of you receiving adequate care. Make sure you are prepared as well as you can he ahead of time, and avoid making important health decisions about money.
Udemy has some great courses on financial planning. Check out “Constructing Your Retirement Plan” for more information.
Last Updated October 2023
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