Financial planning can seem like a daunting task, especially if you’re a recent college graduate, new parent or heading into retirement. No matter what stage of life you’re in, planning ahead for your future could make all the difference.
If you’re unhappy with your savings, there’s no doubt you are alone. Many people want to be better financial planners, but simply don’t know where to start. But before you think about your actual savings goals, first we need to discuss the reasons you’re currently struggling to save.
Why Isn’t Your Savings Growing?
- You don’t create and follow a budget. Without a budget, you’ll have no way to really know where your money goes month after month. And if you’re clueless about what your expenses look like, you’ll have a hard time reducing them as part of your financial planning. Here is a step by step guide to creating your first budget. Once you have your budget in place, make sure you prioritize following it, too.
- You give in to impulse buys. Many of us know how easy it is to head into a store for one thing and come out with ten. In fact, 42 percent of Americans fall victim to impulse purchases regularly, according to a study by The Ascent. Before you go to the store, make a list of what you intend to buy, and then stick to your list!
- You don’t benefit from tax-advantaged savings accounts. In some cases, the IRS will actually reward you for saving money by giving you a tax break on that cash – that is, if you know where to put it. Your long term goal is to build an emergency fund. Creating an emergency fund is a crucial component of building a healthy financial foundation. How much cash you keep in reserves can depend on your circumstances, but a general rule of thumb is three to six months of expenses, says Celeste Revelli, a certified financial planner and director of financial planning at eMoney Advisor.
A Millionaire’s Best Friend: Compound Interest
You could be a millionaire. It sounds like a far-off dream, right? Actually, it’s more realistic than you might think. With hard work and intentional planning, you can become an everyday millionaire. One way to do that is by using a little money magic called compound interest.
Millionaires view investing as the primary tool for building wealth and securing financial independence. In fact, 80 percent of net-worth millionaires in the study said that investing in their employer-sponsored retirement plan was the main way they reached millionaire status. Meanwhile, 74 percent mentioned investing outside the company plan, and 73 percent mentioned the habit of saving money regularly.
How To Get Started: Talk To Your Financial Planner
Before you start investing, you’ve got to start saving and pay off any debt you may already have; then you’ll be ready to start investing. Yep, we’re talking about the seven baby steps of financial planning:
- Save $1,000 for your starter emergency fund.
- Pay off all debt (except the house) using the debt snowball.
- Save 3–6 months of expenses in a fully-funded emergency fund.
- Invest 15 percent of your household income in retirement.
- Save for your children’s college fund.
- Pay off your home early.
- Build wealth and give.
As you probably noticed, there are some steps on there you might not be ready for yet. But don’t let that stop you from focusing on baby steps one through four! If you’re still living under your parents’ roof, talk to them about what a fully-funded emergency fund would look like and how much you should start investing…when you’re ready.
Imagine what your future could look like if you started today! Give the Corwin-Rey team a call today to talk about your financial future: (360) 414-8754