2.23.2015

Embracing Financial Planning for the Future



Planning for your Financial Future


You have sat down and created a zero based spending plan and are thrilled to see that you have money left over to assign toward improving your financial standing. But where should you spend the money first? Savings, debt, kids college? The feeling of joy just left as your brain starts fussing over these big decisions. Let’s take a step back and look at how to focus your financial goals.


Everyone is in a different stage of their life, which means that you are looking towards different financial goals. Gone are the days of the standard 30 something adding to their 401k and child’s savings account. Many folks are not evening have children until late 30’s and still paying off college debt in their early 30’s.  Unfortunately,  with large debt to pay off and ambitions to keep up with the jones (you know 2 story house, 4 door SUV before you have a stable career) emergency savings, college tuition, and retirement get pushed to the back burner.

What’s the solution you ask? 

Take a reality check and refocus your goals.

  • Reality, to retire at age 65 it is recommended to have 11 times your annual pay saved.For example, if you make $50,000 a year you should have $550,000.00 saved. (time.com)
  • Reality, to pay for 1 years of a child’s college tuition at an in-state university it is recommended that you have $22,800.00 saved, times that by 4 and if you have more than 1 child.
  • Reality, to pay off all debt including the average mortgage it will take $225,000.00 in 2014. (Gobankingrates.com)
  • Reality, to have 6 months of earning saved the average American should have around $22,000.00 in savings.


These numbers seem daunting, even to me who is still working on paying off debt, slowing adding to the kid’s college savings, and slowing building a 6-month emergency savings.

Dave Ramsey probably has the best way to approach this overwhelming mountain of numbers with his baby steps.

My own personal steps have been much more versatile than the “baby steps” approach but I do not think they have been any less focused.

Focus is the key word when creating a financial goal.

  • Focus on how to reach the goal
  • Focus on tracking the goal
  • Focus on the end benefit 

How do you decide where to start?

Savings and Debt
My first suggestion is to look at how much money you have left over. If the number is on the smaller end and you have debt I would assign all of it to the smallest credit payment you have. Hopefully, it will double or maybe even triple the payment. This will speed up payoff time and decrease the amount of interest paid.
If the amount leftover is much larger than a triple payment on a small credit card, make that payment and then start building up your savings.
Once you have the first credit paid off if you have more roll that amount over to the next smallest payment and continue to build your savings first a 1,000.00 emergency savings and then 6 months’ worth of income. 

Children's College Savings
 ***If you child is over 10 years old savings for college is going to be a small struggle if you have not started and have debt. Start research now on how to apply for scholarships and don’t be afraid to limit the amount you will pay for a child. This makes them invested in their grades and sports knowing they will have to help either buy grants/scholarships/or working while in college. **** I would also suggest instead of toys for everyone birthday and holiday start asking for money and sock it away to help alleviate the burden on yourself.

Retirement
 Both my husband and I find it important to contribute to 401k when the option is there and the employer will match. We do not have all of our debt paid off but still contribute the max. This is deducted straight from pay so we do not budget with the money already deducted. I feel very strongly that this opportunity should be taken advantage of when the employer matches. 

Life Insurance and Funeral Arrangements
Finally, something that is not really talked a lot about in the frugal living realm is life insurance and funeral costs.  Have you heard the saying “House poor”? I know a lot of young people that are “life insurance poor”.  Know that  I am not a financial advisor so please consult one to help you with investing and determining your life insurance needs.  Life insurance is a wonderful thing; it helped my grandmother greatly with funeral costs of my pap and my dad with costs to maintain my grandmother’s house while it was on the market. We get life insurance so that there is no burden on those left behind during a very hard season in life.  But why put a large burden on yourself while you are living just to leave thousands behind? This has never made much sense to me. I would rather save the money and leave it to my children.  We personally have enough life insurance to pay for each of your debts and funeral costs (until we pay for this in advance) and to pay for 2 years of college for each child. That is it.
One of the biggest blessings I feel anyone can do for their children is to make funeral arrangements themselves and pay in advance for it. With the passing of a loved one now one really wants to have to figure out how to pay for the high cost of resting arrangements. Look into your options for this as hard as it may be to face this reality.

Financial planning is intimidating and rarely talked about because no one wants to get older, see their little babies grow up or think about death. 

The reality, those few dollars that you have leftover does have a home to help improve your life! Choose wisely friends.

Tell me your biggest fear for planning your future?

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