If thinking about financial problem solving and deciding how best to use your money to reach your goals has a dizzying effect on you, you’re not alone! Fortunately, making progress toward the kind of financial future you want doesn’t have to be so nerve-wracking.
In honor of National Financial Awareness Day, we’ll discuss a few tips and tricks to make planning for the future much easier, whether you’re just starting out or simply need to make some changes to your current habits. We’ll also do an in-depth exploration of some of the most common worries that tend to hold people back from reaching their goals.
What We’ll Discuss:
1. Start Now.
No matter what your goals are, you’ll have a much easier time reaching and possibly even exceeding them if you start now. Whether you want to save for yourself or your family members, invest, kick some tough habits that are preventing you from reaching your goals, or reach another financial goal (or any combination thereof), you can start right away.
The Worry: Do I Have Enough Money to Start Investing or Saving for Retirement?
First, and probably the most common obstacle that prevents people from taking such immediate action toward their money-related goals is the fear that they simply don’t have enough disposable income to do so.
If you can relate to this, it may be time to take a thorough look at your current budget to determine if this is, in fact, an obstacle for you. More often than not, a combination of using basic budgeting techniques and applying an understanding of how to avoid accidentally living above your means reveals more “extra” dollars than you realized you had at your disposal. It’s a good idea to review your budget regularly so that you can adjust for changes in income, debt balances, lifestyle, and other factors. You may be surprised how much relief simply keeping a close eye on your budget can bring!
As to the question of how much money it takes to start investing, you may also be surprised how little it takes to get started. Many investment options, including mutual funds, index funds, exchange-traded funds, and even some individual stocks, have low to no minimum. Fees, however, vary significantly from one investment to the next. It is important to compare the expense of an investment with its potential benefit, including the minimum to get started.
In addition to low-barrier-to-entry investment options, many individuals utilize their retirement savings plan through work to invest. Retirement savings plans offered through work, like a 401(k), 403(b), and the TSP, provide for low-cost investment with low to no minimums. These plans are funded through paycheck deferrals, meaning a contribution is taken from income before it gets to your checking or savings account to spend. That “forced” investing in a workplace retirement plan is a feature many appreciate, particularly when on a tight budget. Additionally, many employer-sponsored retirement plans come with matching contributions from the employer; these contributions can be a significant source of additional investment for retirement.
It’s also important to recognize that starting with an affordable financial plan may be the best initial step toward investing. At EViE, we focus on an education-first approach to planning, meaning our clients know what they can — and cannot — do with their money, whether that involves investing or not. Starting with a cost-conscious financial plan lays the necessary foundation to understand investing on a deeper level, making it easier to move forward when it makes financial sense.
2. Avoid Bad or Impersonal Advice
Limitless internet and social media advice exists where finances are concerned, but that doesn’t mean the advice you hear is either financially sound or customized to you and your specific goals, needs, and obligations. While financial awareness and researching tips to make the most of your money are always good habits, it’s important to understand how to distinguish between fact, fiction, and advice that’s not necessarily appropriate for your financial picture.
The Worry: How Can I Tell If I’m Getting Good Financial Advice?
The best answer to this is to consider the following smaller, simpler questions:
Do I trust the source? This can be easy or tough to answer, depending on where you’re getting your information. Is the advice coming from a social media platform? Chances are, it’s neither professional advice nor advice that takes your specific needs in mind. Get-rich-quick advice is as proliferous as ever on these platforms and is seldom well-suited to most investors. If the advice is coming from a more reputable source, such as an online resource known for providing sound financial advice (like Investopedia and Nerdwallet), chances are it’s at least solid information, even if it’s not necessarily tailored to your own financial picture. It’s still best to take online advice with a grain of salt and consult a professional when possible.
Does the advice apply to me? As hard as it is to resist taking one-size-fits-all advice, your goals deserve much more of a customized approach. Yes, financial advice should always start from a strong, factual baseline that applies equally to most if not all people, but it should also take into consideration your own financial picture, including your goals, tolerance to risk, debt, lifestyle, income, and much more.
Do I detect any ulterior motives for this advice? A knowledgeable, responsible financial professional will always make recommendations with you at the forefront, and will always disclose any fees, commissions, downsides, or risks associated with the decisions you’re making. If you don’t hear these pieces of perspective-lending information, steer clear.
If you’d like some help answering questions about your financial goals, give us a shout!
3. Prioritize Your Debt
Yes, debt should be a priority, and for many people it already is. However, prioritizing debt doesn’t just mean paying attention to it and making it a priority; it means you should also consider which debt pay-down method makes the most sense for your situation.
The Worry: How Do I Know Which Debt to Pay Off First?
The answer to this question is always “it depends.” You’ll need to consider how much debt you have, where it’s owed, what the interest rates are for each amount, and a few other factors.
Gathering this information isn’t as difficult as it seems, and will help you get a good feel for which debts will end up draining your wallet faster than others. It’s a great way to prioritize!
The best way to figure out the order in which you should pay off your debt is to chat with a financial professional experienced in that kind of financial planning. That way you’re sure to work with someone who can take your entire financial picture into account before making recommendations.
4. Investing for Family & Future
We all know investing and saving are intended to set you up for future financial success, but have you re-evaluated your financial objectives and allocations to include any changes to your family? If you’ve recently expanded your family via marriage or by bringing children into the picture, it’s very important to scale your budget accordingly and to consider what investment or savings goals you want to pursue.
For example, if you’ve recently gotten married, it’s likely that you’ll want to conduct an in-depth and honest assessment of the family finances as they now stand. Does your budget need to be adjusted? Between the two of you, do you have a good idea of your goals for lifestyle, retirement plans, and the funding of education for any children you may bring into your family?
It’s a good idea to start with the paperwork side of things by updating accounts as needed to add your spouse or partner. The institution(s) where your money is invested or in savings can often guide you fairly well through this process, but it may be good to consult with a financial professional to make sure the kinds of accounts you’re currently using will still be appropriate now that you’re married. Need help? Reach out!
5. Education Funding
Another important consideration for your family’s financial wellness is whether you’d like to begin saving for education for your children, if applicable.
The Worry: How Do I Know Which Account Is Best for My Kids' College Savings?
While researching this topic with reliable resources like Investopedia can start you off on the right foot, it’s always better to consult with a financial professional before deciding where to save money for your child’s education.
It can be easy to learn the basic differences between custodial accounts (UTMA or UGMA) and a 529 account, but a responsible financial professional will always take your entire financial situation into consideration and explain any benefits or drawbacks that pertain to each account type. Being well informed is the best way to be sure you’re setting your child or children up for success!
6. Retirement Planning
Whether you currently have retirement savings or not, it’s an important goal to stay on top of. As mentioned before, it’s never too late to start saving for retirement, and the earlier you start the easier it will be to reach your goals.
The Worry: What Kind of Retirement Account Is Best for Me?
If you’re just starting out, it’s often easiest to simply start with whichever retirement savings option is offered by your employer, if one is offered. This way the money is taken directly out of your pay and you never have to worry about seeing it, thereby preventing the temptation to spend it instead of saving it.
That said, there are a lot of retirement account types, and each serves a specific goal and includes different benefits and, of course, drawbacks. For instance, would saving pre-tax money in an IRA and paying taxes on it when you withdraw it later be more beneficial to your goals and future income, or would using a ROTH account type be more appropriate for you? Would it be more appropriate and beneficial for you to sock away retirement savings into multiple kinds of retirement accounts instead of putting all of your money into one account?
These kinds of questions can be intimidating and hard to find the answers to on your own, but you do have resources at your disposal, including the advice of a financial professional. If you’re wondering about the best way to save for your retirement, we’d love to help you find the right fit for your financial goals.
7. Life Insurance
Life insurance is, unfortunately, commonly overlooked, but it’s a surprisingly important part of a well-rounded plan for financial success. Additionally, many people vastly overestimate how much life insurance will actually cost them, and opt not to take advantage of the coverage it can provide! The chief purpose of life insurance is to ensure that your family is provided for in the case of a tragedy that removes you from a position of being able to contribute to your family’s income, but there are other benefits as well (depending on which type of life insurance you choose), and many types are surprisingly affordable.
The Worry: Life Insurance Is Confusing… What’s the Difference Between Types of Life Insurance, and How Much Do I Need?
Do you worry about a tragedy causing you to be severely or terminally incapacitated, and fret about what your family might do if that were to happen? Life insurance is intended to help allay those fears. Choosing the right type for you really depends on your goals, budget, and a variety of other factors, including your physical health.
Forbes provides an excellent breakdown of the most common types of life insurance, the benefits associated with them, who they’re appropriate for, and the drawbacks to consider for each.
Once you know what kind of life insurance best suits your needs, you’ll want to get a good understanding of how much life insurance you’ll need to provide for your family in the event of a tragedy. Things to consider:
Will you want coverage for long-term care, critical care, or chronic illness? This can be hard to know, but family history and your known health conditions can help provide clues.
Most people who purchase life insurance want to at least have enough to cover their final expenses and to help cushion their family for a time after their passing, in the event of a tragedy.
Certain types of life insurance can actually supplement your retirement savings, as they accumulate cash value in addition to their covered expenses.
Want to learn more? Check out Investopedia’s list of five top benefits of life insurance!
8. Put Your Money Where Your Morals Are
Whether you’re new to investing or are already familiar with it, you may be surprised to learn that your money can do more than just work for you — it can also make a statement about your beliefs and the companies in which you feel it’s right to invest.
Thanks to the growing body of securities that meet Environmental, Social, and Governance (EGS) standards, these days it’s easier than ever to know if your money will be used in ways you agree with while it’s invested. Worried your money won’t do as well in investments that are more responsible by ESG standards? Thankfully, that’s a myth!
Financial Awareness: The Bottom Line
No matter who you are, you likely have an idea of what you want your future to look like, but few people know exactly how much money it will take to achieve those goals. When laying out a plan for your financial future, start by maintaining a realistic budget, starting or continuing to save for retirement, and seeking help when needed to determine which investments and accounts will set you up for the most success.
If you’d like to chat about your goals and get answers to the questions you’ve thought of while reading this article, get in touch with us! A quick consultation can help put your mind at ease and get you started down the path you want to be on.