Taking the stress out of creating a financial plan at any stage of life.
YOUR FINANCIAL PLAN is a living, breathing document that helps chart the path forward toward your goals. However, for people of all ages, financial planning can often feel overwhelming and stressful.
From getting married and building a family to growing in your career, a financial plan keeps you on track. A common misconception is that an individual is too young or does not have enough assets to create a financial plan. The reality is that everyone — whether you are in your twenties or in your nineties — should have one. While your plan will adjust as you age and as your life experiences change, it will help keep you on the path to your financial goals.
In an attempt to deconstruct and take the stress out of financial planning, let’s take a look at some of the common components of a financial plan and how they may evolve as you move through different stages of life.
Create a Budget
The first piece of your financial plan is your budget. When you are in your twenties and first starting out in your career, your budget does not need to be complicated. No matter how much you plan to save or spend, you should start by writing everything down — your monthly expenses, income, and savings.
We find that when our clients do this, they are typically surprised to see how much they are actually spending. By subtracting your monthly expenses from your total monthly income, you are able to determine what discretionary money you have. Some of the money left over can go toward your savings, and the rest can be spent on your “wants” or non-necessary expenses. Your budget is something that evolves as you and your needs do. For example, when you experience salary changes or undergo a job change, you should re-evaluate your budget and how much you are saving. If you start having children, your family and your monthly expenses are going to grow, and you will have to adjust your budget accordingly.
Maintain an Emergency Fund
Life is unexpected, which is why in any stage of life, it’s important to have a cash reserve in case of an emergency. Emergency funds can be hard to budget for in the early years, so first aim to have at least 3 months of expenses saved up in case of emergency. As you inch toward retirement, we recommend you have 9 to 12 months of expenses saved to cover unexpected costs.
Manage Debt
While there are several strategies you can employ to manage debt in your financial plan, the strategy you choose should be based on your own values, needs, and personal savings habits. For example, it may be motivating for you to pay off your smallest debts first and use a snowball effect strategy to tackle the rest. Another sound strategy is to pay off the highest interest rate debt first, then move to the next highest, etc.
Employ Investment Strategies
A key part of your financial plan is your investment portfolio, and working with a financial professional will simplify the investing process significantly. We’re here to help you navigate the complexities and regulations associated with different investment types and strategies, and ensure you are on the right path to reach your investment objectives.
Generally speaking, the younger you are, the higher your risk tolerance is and the more you can invest for growth. As you approach retirement, you may want to be more conservative with your investment decisions and control your risk. When making investment decisions, it’s important you invest with your goals in mind and aim for diversification within your portfolio.
Additionally, a financial professional can help you work with your accountant to develop the best strategies for tax savings both while you are accumulating funds leading up to retirement and while you are distributing funds during retirement.
Plan for Retirement
It’s never too soon to start planning your retirement, and you’ll want to get into the habit of saving as early as possible. When you first enter the workforce, contributing to an employer sponsored retirement plan like a 401(k) or a Roth Individual Retirement Account (IRA) is a great way to get started.
As you grow in your career, take advantage of pay raises and gradually increase your contributions to your existing retirement savings. You can also explore other ways to save for retirement. For example, if you are over the age of 50, you can take advantage of annual 401(k) and catch-up contributions.
Create an Estate Plan
Your estate plan does not have to be complicated. We recommend having at least a Health Care and Financial Power of Attorney, starting at age 18, and updating them as you navigate through life. You should also have beneficiaries on IRAs, 401ks, and life insurance policies.
Additionally, PODs (payable on death) on bank accounts and TODs (transfer on death) on investment accounts keep those assets from having to go through probate at your death and allow your loved ones to access your funds much quicker.
As you grow older and acquire more assets, you should expand your estate plan to include necessary documents like a will or revocable trust, update beneficiary designations, and determine if a corporate trustee is appropriate. Before retirement, reevaluate your estate plan to check all your directives are up to date.
Set Goals
Often, people plan to get to retirement but fail to plan what they want to do in retirement. Before you reach the finish line, have an idea of what you want to accomplish and how you want to spend your free time in the future. It’s also important to understand what those plans will cost.
Establish a Financial Team
The best way to take the stress out of financial planning is to enlist the expertise of a financial professional. As you navigate through different life stages, a Trust Point or Emerj360 professional can serve as a resource to answer your questions and provide you with peace of mind, knowing that someone is helping you stay up-to date on rules and regulations and is taking care of both you and your plan.
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