As the world continues to change, your situation can change right along with it. While that isn’t necessarily a bad thing, it does mean that it’s important to have a plan in place.
That rings especially true when it comes to finances. Your investments, savings and finances in general can make the difference between a secure future and one wrought with insecurities. But what do you do when you find yourself starting from “Step 1,” or if your financial plan is beginning to collect cobwebs? According to financial experts in South Jersey, focusing on a few important aspects of your finances can make all the difference.
Budgeting
The first thing experts suggest is understanding your budget.
“That is the first step... that we need to do. Your budget is your core: Just like if you were doing yoga and exercising, you consider your stomach your core for all exercising. Your budget is your core because you need to see what money is going in and what is going out before we can begin,” says Catherine Allen, financial adviser and certified financial planner with M Financial Planning Services.
Allen says that when she meets with a new client, it’s crucial to look at finances as a whole before considering any investments. “We need to look at your income coming in, spending going out, what you’re putting away for retirement and if you’re putting away for retirement, an emergency fund, your college savings, whether or not you need life insurance, estate planning, mortgage, debt, refinancing,” says Allen. “It’s about so much, and more, than just money management.”
Putting those essentials into a formal, written plan can only be a success if you follow up with it regularly. “If you’re going to be financially healthy, then you need to have an annual review or examination on your financial health,” says Allen. “Just like you go to a doctor for a well visit, an annual review can look at your progress, at your debt, credit and setbacks to plan for the future.”
From there, consider an emergency fund as a priority investment.
“Having an emergency fund is important now more than ever,” says Stan Molotsky of SHM Financial Group. Molotsky says that financial plans are more industrious than ever, with options built truly for everyone. “There are a multitude of plans available today that weren’t available a half a dozen years ago,” he says. “A lot of people get caught up in stocks and mutual funds and think that’s all that they can do, and there’s so much more than that.”
Retirement
Financial advisers agree that a happy and secure retirement is an important goal for anyone, and as Americans are living longer and longer, the plan needs to be monitored more closely. According to the Center for Disease Control and Prevention, there are more than 72,197 Americans alive who are in their 100s, a number that is expected to exceed 1,000,000 by 2050.
“Even if you don’t reach 100, you have a very good chance of living well into your 90s,” explains Allen. “If you’re a 55-year-old couple who plans to retire in 10 to 12 years, you can expect a total lifetime health care of $463,000. You want to live longer, but in that process you risk running out of money. And health care costs are a huge factor in people who are retired because they spend so much out of pocket. You don’t realize that what you spend on health care in a lifetime can be huge.”
Staying organized and re-evaluating your retirement plan as you age can take a massive weight off your shoulders in the long run.
“We have people we work with that will have met with us eight years ago and then step away from it, but as they get closer to retirement they realize it’s time to take things really seriously,” says Molotsky. “When you get closer to retirement, or you’re into it, that’s it: you have what you have. So you want to be cognizant of that money and mindful as you continue in life.”
But remember that keeping a set number of money in an account for retirement might not be the best solution for you. “A lot of people ask how much money they need to retire,” says Allen. “And that depends entirely on your lifestyle. A financial planner will look at how much you have, the growth based on investment and what you need for your lifestyle to help determine that.”
Allen suggests imagining your investments in terms of “buckets of money,” a guide she uses in her profession. “The first can be a bucket that you’re going to use for living expenses, up to five years,” she says. “That could include money for health care and an emergency fund. The other bucket, from ages 70 to 80 would be more related to growth potential, but would also be used to replenish the first bucket. The third would be one that you haven’t touched for a while, and have given it the opportunity to grow. These psychological buckets mean you don’t have to be as concerned about what the market is doing today, this year or next year, because you have money readily available today.”
Education
One of the biggest predicted changes in the financial future of young families is related to education. Experts agree that, while politicians are promising to lower the cost of higher education, no one should put all their eggs in that basket during an election year.
“Don’t bank on political promises of reduced education costs,” says Molotsky. “Universities are designed to make money, and they don’t intend not to make any money. So when planning for your future, be safe and cautious.”
Investing in college is more important than ever, especially when related to the rising costs of tuition. Allen says that college funds can become a family investment, especially when relatives are constantly asking for gift ideas for young kids or teenagers. “The cost of college costs and the inflation is huge, but it doesn’t always have to be just you putting money away for your children’s college,” Allen says. “In fact, what I’ll do with my own nephews and nieces is get them a small gift that they’ll enjoy in that stage in their life, and then invest in their college fund as the foundation of the gift.”
Families are also embracing a money saving strategy through two years of community college. “Community college is a wise investment for parents and students,” says Molotsky. “Employers aren’t concerned with where you started; it’s about how you end and how you excelled with your education.”
Seeking help
No matter what path you take, a professional, credible source can make all the difference.
“You want to do your homework and find the right fit,” says Allen. “You want someone who is concerned about your money, who isn’t just putting their money into an investment and that’s that. You want an adviser that you can call whenever you’re unsure of something.”
“No matter who you work with you want to make sure that they work for you, not for their firm,” says Molotsky. “Look into how they get compensated for how they do, be it on a commission, fee for service or a combination of the things. There’s nothing wrong with any of that, but you as the client have to be comfortable with that. You want multi-dimensional options that adjust to change.
“Remember that tomorrow comes quickly. All of the sudden you’ll turn around and you will be more mature,” says Molotsky. “You want to start yesterday, putting something away for some purpose.”
Published (and copyrighted) in Suburban Family Magazine, Volume 7, Issue 10 (December, 2016).
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