9/26/2013 5:45 PM ET|
Why financial plans aren't just for the rich
Only 31% of financial decision makers in families say they have created a comprehensive financial plan. Here's why that should change.
Financial plans are only for people with so much money, they don't know what to do with it, right?
Actually, studies show that a comprehensive financial plan can benefit people at all income levels -- but not a lot of Americans know this.
Only 31% of financial decision makers in families say they have created a comprehensive financial plan either on their own or with professional help, according to the 2012 Household Financial Planning Survey conducted by the Certified Financial Planner Board of Standards. The Board defines a comprehensive financial plan as one that covers savings and investments; planning for retirement, education, emergencies, major purchases, and other financial goals; and insurance needs.
But few people have plans in place to cover even a part of their finances: The same study showed only 35% of people have a plan to save for emergencies. And only two-thirds have a plan to meet any of six savings goals, such as for emergencies, retirement, a child's education or a down payment on a house.
It's too bad those figures aren't higher, given that the same survey showed that comprehensive financial plans benefited even people at lower income levels.
As Tom Pemberton, a certified financial planner and owner of Charlotte-based DBA Pemberton Financial Planning, said, "The way you get into the higher income bracket is to have a financial plan."
And don't dismiss financial plans as being for older people. Pemberton, in fact, recommends financial plans for people in their 20s, to help prevent them from making financial mistakes.
"If you look at people who are financially successful," he said, "most of them have been making very smart financial decisions all their life. The sooner you start making smart decisions, the sooner you know where you want to go, and if you have a plan to get there, the more likely you are to attain it. Time is the one thing nobody can give us. If you start in your 20s, you don't have to save that much. The longer you wait, the more you have to save to make that goal." (He was referring to the fact that, the more time investments have to grow, the less money an individual needs to put away in order to achieve the same returns as someone who gave their money less time to grow. This principle is especially helpful for long-term savings goals such as retirement.)
Here are 10 reasons to get a comprehensive financial plan if you don't have one yourself:
1. It will help you define your financial goals
Most financial planners will begin your plan by asking you what your financial goals are. For couples, sometimes doing this exercise alone is enough to get the two partners on the same page. "Most people spend more time planning their vacation than planning for retirement or for their financial goals," said Pemberton.
2. It will help you see whether your goals are realistic, especially for your timeline
After taking a look at the goals, Pemberton looks to see how you can get there -- how much to save, what types of investments to make. "Then, the planner can do a cost-benefit analysis. Are your goals realistic? Are they attainable? Most of us have more goals than financial resources," he said, adding that time is a huge factor. "It's usually not that the goal is not attainable, it's that the timeline is not attainable," he said, noting that many goals, such as saving for retirement, a mortgage or a child's college education and paying off debt, take years to accomplish.
3. It will help you see how you can bring your spending in line with your goals
Once you know where you're headed and how long it will take to get there, then you can look at your cash flow to find out if you're spending more money than you're taking in. "If you have negative cash flow, there's no way you can meet your goals," said Pemberton. The exercise of analyzing expenses often surprises people. "They say, 'I had no idea I was spending that much on Starbucks (SBUX) or eating lunch out,'" he said.
4. It will show you what money mistakes you're currently making
Aside from spending too much, Pemberton says analyzing not just spending but the overall financial picture sometimes exposes mistakes -- and easy fixes. Pemberton said, sometimes people look at their credit card debt and say, "I'm paying 18% on interest to a bank. Am I making anywhere near 18% on any of my investments?"
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A good financial plan is necessary for everybody,
Good investments will earn more money than you will over the course of your life if you are willing to set money aside to invest. This means staying out of debt, making wise choices, and sacrificing today, for whats important tomorrow.
money never sleeps, it never gets tired, it never takes a day off, it earns 24 hours a day 7 days a week.
It's your job to manage it properly, and tell it where to go to work.
Having a sound financial plan is a sensible way to have a successful retirement and in achieving all of your financial goals. One of the many things my parents taught me was to live within your means, have a budget, stay out of debt, and have a rainy day fund for unexpected events. My parents were and are very conservative with their finances investing in CD’s, savings and checking accounts, money market funds, annuities, and a few stocks.
I learned the basics of saving and budgeting from my parents and the importance in having a plan. I was always a good saver and when I was young .I invested my money in the same conservative investments my parents had. In my twenties the interest rates were much higher and I made good income on those CD’s, savings and checking accounts, and savings bonds I purchased.
In my thirties I taught myself how to invest in stocks, bonds, mutual fund, REITS, and other investment vehicles. Businesses were changing. Pension plans were becoming a thing of the past and employers began offering 401K plans to their employees. I took full advantage of my companies 401K plan and company match. I also invested in an IRA to take advantage of tax deferred planning. I stuck to a budget and set financial and retirement goals. Every year I would closely monitor my investments and make changes to my plan when needed.
I am in my fifties and plan on continuing to work for another ten years or more. I have been though economically downturns, being downsized and having to start over, and other ups and downs everyone experiences in their lifetime. I am on track to achieve all of my investment and retirement objectives. What I have learned is very important to have a plan for your life and your investments. The early you start planning the easier it will be when you get older.
We all know how that year turned out. My little family did not come out of the Recession completely unscathed, but we did make it thru intact. It pays to plan, people.
since I learned to invest for income I sleep much better at night. I don't have to wait for the "next big thing" or winning lottery ticket. Invest for income, REITS, BDCs, all are excellent vehicles for income!
I went through the 2008-2012 recession bubble from 1990-2004, so I'm comfortable in
'been- there-done that' experience, to and including getting food stamp assistance. I
didn't operate a computer until age 56 and my income took a dive as I went two years
unemployed due to lack of computer computer skills.
While waiting in the GA line for monthly recertification of Food Stamp Eligibility I'd read
grocer's weekly specials circulars as though they were Steinbeck novels. I studied eggs.
(My GA documents were in Vietnamese, Tagalog, Spanish, etc. which I didn't know.)
As in how many large eggs equal an extra large egg or a jumbo egg or as in how many
pee-wee eggs equal a large egg, etc. Then I studied dozen-egg prices for several months.
(There is a famous book called THE EGG AND I - try the library) Egg prices flexed
depending on vendor, location, season, special, etc. Big variances were noted.
Around that time I read a free San Francisco Guardian article informing readers the
Swiss and a few Tokyo homemakers were spending $8 for a dozen large eggs while
San Franciscans could find them for 96 cents a dozen. That blew me away! Hey! No
wonder some are out-of-luck, some rich, some poor.
As of Oct. 17, 2013 one chain grocer is selling large eggs for .0833 cents each, with a
four dozen limit; at another chain grocer, the cost is $2.69 for 18, or .149 cents each.
GET INFORMED, STAY INFORMED, MONITOR AND SURVEY THE FIELD; STRIKE
WHILE THE PAN IS COOL. The 'financial market' works exactly like eggs per dozen
in 85% of the transactions it conducts.
Never buy Met Life group disability insurance policy. They will not pay legitimate claims. Claims will be denied, appeals will be denied. Only a long drawn out law suit will get Met Life to pay and then you will owe 1/3 of the benefit you paid for and Met Life rightly owed you to a lawyer. Met Life sucks!
Playing it close to the line? Really, really close, or from what-ever that was earned
is owed plus there's always a bit more still due? If you are there, you are on a
merry-go-round and are sure to lose; no not "sure to", but have already lost. So
here's one that's probably not included in your emergency reserve fund calculations
but should be.
But about those emergency reserve funds generally, those earmarked for emergencies
which you never, ever tap. Not funds available from your official retirement plan funds,
but funds set aside for an emergency. (Proper language use is never unnecessary;
retirement plan funds are not 'genral savings accounts'; retirement accounts are only
accounts to be used upon reaching retirement.)
No budget is complete without an emergency fund for emergencies only. Nothing
indicates more 'prepared' and 'manager certified' than an emergency fund surplus.
Absolutely nothing else will clue so well others you can manage until you have an
unspent surplus in an emergency fund. You should also have maintained that
unspent earmarked surplus for a long time, or for several years. Because to many
of us, money burns a hole in our pockets -- what's was an achieved fact in June has
deteriorated to an empty-set in January. We jellied out and are forever borrowers.
One method to reduce the emergency fund reserves fund adequate minimum level
is through insurance coverage. In the case of a fire at home, it'll cost us say $200
daily for hotel accommodations until we secure other more permanent temporary
shelter arrangements. So we must have in reserve at least a full week's hotel costs
in case of fire/earthquake/flood/attack, etc., etc.or $200 times 7 plus money for
restaurant meals, toiletry replacement, clothes replacements, etc. or probably
$2,500 to be on the safe side. But if we have insurance, we might know they'd
kick in up to $80 daily, so we only need to have in reserve $2500 less $80 (7) or
$560, or less than $1900. YOU ARE NOW WORRYING ABOUT OBAMA CARE
Have you also established an amount of minimal emergency funds for electronic
waste removal costs? Since they can't be donated, you'll have to dump them in an
official area that assigns a fee for your so doing. Your old cumbersome Eighties
tv, refrigerator, stove, computers, exercise equipment, stereos or generators?
We can't just put them in the dumpster or back yard and file-and-forget can we?
Ya, can ennui! Now we're talking emergency fund management savvy ......
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