Whether you’re a millennial, baby boomer, Gen X or Gen Z, you face financial questions besides just getting through to next payday. Here’s a simple two-step checklist to help you start planning with your money.
Critical for long-term success, your financial plan doesn’t need to be complicated. It DOES need to provide a starting point and create a baseline for measuring your goals.
Sure, you can get complicated and incorporate programs and apps into your initial planning so that you can better document your goals, time horizons and investment objectives. And of course, our plan will serve as a basis for budgeting. But if for some reason you can’t start, then consult a financial advisor. Because you have to start.
With time on your side, invest early on to maximize your returns. Keep investments simple and costs low. For instance, consider low-cost, broad-based index funds in your portfolio to diversify holdings, reduce management expenses, and mitigate tax consequences. This is our approach at Patriot.
Automating transfer of money from your paycheck to your investment account streamlines this process. You can start with a small amount of your pay until you get more comfortable, and increase amounts later.
A More Comprehensive List of To-Dos
If you are beyond the simple two-step checklist, consider these steps to help you start seriously planning with your money.
You have to know exactly how much you need per month to live. Guessing is just setting yourself up for failure.
The easiest way to create a budget is to look at what you currently spend. Grab your utility bills, bank statements, and credit card statements for the last three to six months, and calculate how much you spend in major categories like groceries, eating out, and car expenses.
These categories will change in retirement, but having an idea of what normal feels like before retirement is a good place to start. You should also factor in inflation, which increases the price of goods each year.
While inflation is currently hovering around 2%, use a more conservative estimate and assume that prices will increase by as much as 3% each year.
Plan for Retirement
It’s never too early to create a retirement plan. Retirement accounts provide tax-deferred growth, a powerful feature to help boost long-term returns and provide income decades from now when you stop working.
If your company offers a 401(k) plan, see if your employer matches a portion of your contributions. At the very least, contribute enough to receive your full company match, often around 5% of your annual pay (though percentages vary).
You should also review what sources of income you have during your retirement. This may include a pension, Social Security or part-time work.
Pay down all your debts by your retirement date or even sooner. Getting out of debt early in life makes retirement planning a much smoother process. There’s nothing more terrifying than having a significant drop in income because of retirement and having a mountain of bills to pay.
Creating a financial plan includes physically reviewing all statements, paystubs, and other financial documents – make sure you review the actual documents, not summaries.
You will likely notice a number of fees tacked onto bills, loans and other expenses that you previously overlooked. Banks, for instance, are notorious for quietly changing their rules and tacking on fees. Did you know that according to Bankrate, ATM fees have increased every year for the past 14 years and now average $4.68 per transaction? That’s 36% higher than a decade ago.
Every fee means less money in your pocket. See how many fees you can reduce or remove in the year and reinvest those dollars in a retirement account.
If you neglected to open your brokerage statements or log into your 401(k) account for over a year, you’re long overdue. Make sure you saved enough during the past year and are on track to save enough before retirement. It is always a good idea to overestimate your needs.
According to reports from CNBC, 75% of Americans are going it alone, without the help of a financial advisor. The plain truth is that too few people plan their finances, and if they had a good advisor, they would be way better off. If you are in need of an advisor, or know someone who is, get in touch with us today.