Yes, the designation of October as National Financial Planning Month could be a contrived creation foisted upon us by certified financial planners (to a cynic like myself). Regardless, it’s still a good time to make or review financial plans for your future. After all, it was created to, “Promote financial literacy and raise awareness among the general public of the value of financial planning.” And who among us doesn’t need to improve our “financial literacy” and be made aware of the “value of financial planning?”
As someone quite a bit more intelligent than myself once said, “A goal without a plan is just a wish.” These words to live by apply to many situations, especially to setting financial goals like being secure in your retirement, or purchasing a new home, or saving for your child’s college education. Sure, they’re noble goals, but how are you going to get there? That’s where financial planning comes in. Look, most of us do not plan to travel somewhere we’ve never been before without mapping out the route, whether the old school way, utilizing a paper map, or with a GPS. We still know how we’re getting to our destination and getting to, or achieving our financial goals is no different.
Full disclosure, I am NOT, in any way, shape, or form, a certified financial planner, but I play one on TV…I jest, of course. However, I don’t need to be one in order to remind people to get their financial house in order and to plan for their, and their family’s future. And this doesn’t need to be rocket science. All we’re talking about here is the “b” word (budget) and using it to plan for your financial future and goals. It does, however, include more than just placing your extra money under your mattress or in a simple savings account…they’re essentially the same thing since the interest earned in a savings account and under your mattress are just about equal…oh yeah, there is that big shiny vault.
First step towards creating a budget: a list of your assets (car, savings, investments, home equity), and liabilities or debts (mortgage, student loans, car payment, credit card debt). The difference between the two is your net worth…it can be positive (hooray!) or negative (crap!).
Step two: list of your monthly expenses (utilities, groceries, fuel, insurance) and monthly income, from all sources. Hopefully, your monthly income exceeds your monthly expenses. If not, you’ll sink deeper into debt and use more and more of your income to pay off interest rather than your actual loans. You might also want to track your spending habits for a month or so to see exactly where your money goes, from your smallest impulse purchase (Starbucks) to your largest unplanned indulgence (picking up the bar tab after guys/ladies night out). Most are quite surprised at the money “wasted” on non-essentials, aka disposable income that’s actually thrown in a disposal.
Once that’s all done, you should now be able to determine how much money you can set aside to reach your financial goals, whatever they may be. Just remember, it’s never too late or early to start planning for retirement or your kid’s college expenses. One of the most popular and safest investments to help save for retirement is a Roth IRA (individual retirement account). A Roth IRA is simply a special retirement account funded with post-tax income and there is no up-front tax deduction for Roth IRA contributions as with a traditional IRA. Also, access to your contributions, but NOT the earnings from those contributions, are tax and penalty free. Roth IRA’s make the most sense for those who expect to be in a higher tax bracket during retirement than your current bracket. This is usually just about everyone, but they make the most sense to young, lower-income workers.
As for college financial planning, most state’s offer what’s known as a 529 plan, so named from section 529 of the IRS code. They differ from state-to-state, but they essentially allow you to pay all or part of in-state tuition for a public college education well before the potential student enters his/her college years. In other words, they permit you to pay tuition costs for a specific year, before tuition increases in future years. For example, you can pay 2017 tuition costs even though your child won’t enter college until 2030.
As previously stated, I am NOT a certified financial planner, so if you’re interested in learning more about listing your assets, liabilities, and monthly expenses or about a Roth IRA or a 529 Plan, please seek the assistance of a reputable certified financial planner…and that ain’t me.