Basic Financial Planning: The Self – Help Possibilities

The wealthiest Americans, often, rely upon, a large number, of, hopefully, well – qualified financial professionals, to plan, such things, as tax planning, estate plans, efficient budgeting, diversified investing, etc. However, for the vast number of us, we neither, have the amount of assets, nor the need, or ability, to hire these individuals. Most of these professionals charge significant fees, and, often, demand, a minimum amount of assets, to be invested. For most of us, there is a need to have a financial plan, in order to proceed, in a way, where we achieve, the most, bang – for – our – buck, and become able to live, life, to its fullest. With that in mind, this article will attempt to briefly, examine, consider, review, and discuss, a few, common sense, approaches, and behaviors, that, require a degree of self – discipline, and foresight.

1. Know your financial needs, priorities, goals, etc: What do you wish to achieve in your life, from a financial perspective? Is there a realistic way, to do so, by using personal discipline, and a focused approach/ plan? Will you begin financial planning, for your present, and future needs? What will you do, to plan, for your children’s educational costs? How about your retirement? Many give up, because they feel, they do not have the ability to achieve these objectives, but, most people do, if they plan, far enough ahead, and discipline themselves, consistently. After all, you pay many bills, every month, including your mortgage/ rent, utilities, and other current needs, so wouldn’t it make sense, to proceed, with the discipline and attitude, to pay yourself, first?

2. Periodic payments/ installments; dollar – cost averaging: For the average person, the best way, to attain and maintain, a significant, diversified portfolio, is to use, what is referred to, as, a periodic payment plan. This means, every month, preferably on a specific date (same time each month), putting the same amount into a mutual fund. This should be, a diversified, balanced fund, in order to perform, in a variety of market conditions, etc. Dollar – cost averaging means, since, the price of the fund, generally fluctuates, you will purchase a different number of shares, for the same dollars, but, hopefully, over – time, this approach will be extremely beneficial, and grow.

3. Discipline: This type of approach, will only work, successfully, when you proceed, with a self – imposed, discipline, to pay this bill, to yourself, every single month. In the longer – term, you will benefit, because, you will, without feeling much pain, build up a significant portfolio. Wise people realize, your success, is up – to – you!

This basic, simple, approach, is tried – and – proven/ tested, and works, because, it lets the average person, help himself, in a logical manner. Are you up to the task?

What Else Do I Need to Think About in Retirement Beside Money?

There are 5 proposed elements to the retirement mindset. These are health, energy, time, relationships and money. These elements work together to provide a lifestyle picture which is more holistic and encompassing for this stage of life. There are questions proposed to get you thinking about how these elements have a role in your retirement.

Aside from money, health is the second most talked about topic when it comes to retirement, but the focus tends to be on nursing homes and long term care. What about extra costs for home renovations, equipment, supplements, extended health care etc.? Maybe you don’t feel like making the trip to the cottage or down south as often as you used to. Maybe you can’t take transit the way that you used to and prefer to drive your car for convenience? Maybe you have certain health issues and need to be near certain specialists or alternative care practitioners? Perhaps a health condition means you need to eat certain foods, have certain clothing or have different gadgets to keep your environment purer that you otherwise would have needed.

What is energy? This can be thought of as motivation or willingness to do various tasks. You may not want to travel as much as you used to, even though you are physically able to. You may not tolerate working long hours like you did when you were younger. You may prefer things to be slower and quieter. Is this consistent with a condominium in the downtown of a congested, loud city? You may tend to want things close by. The doctor and dentist go without saying but what about friends, activities, your hair stylist or stores? There may be a point when you don’t want to drive anymore and this will change your whole routine.

What about time? The myth among working people is that retirees have all the time in the world. Nothing can be more wrong! Oh sure, there is not work to go to each day, but there are household chores, hobbies, associations to be a part of, people to take care of, pets, household repairs and things that there was no time for before retirement. What are you going to do with your time? People who are not prepared for this will be in for shock as they may either be bored out of their mind without work, or may be overwhelmed at the change.

Relationships are key as well. Many people think relationships are not going to change in retirement, but they can. The first thing to consider is your spouse: Are you used to having this person around all day every day? Going to work and seeing them for a few hours at night is not the same thing. Having a spouse and small children and running around all day is not the same thing as spending all of your time with someone. Will their habits start to annoy you? Are you going to have different needs if you are home during the day time? The same thinking applies to your children. Are they expecting you to babysit your grandchildren all of the time? Are they expecting you to come off the bench and pitch hit when they need some time alone? Maybe you want to have some fun in retirement, and maybe this is not consistent with what they had in mind. Conversely, what about taking care of you and what is involved with that? Are you expecting your kids to come out and do things for you and in what circumstances? The thinking expands to include friends, extended family etc. There is also the idea of where do you want to live? Most people don’t change their home in retirement, but it depends. Are you banking on your home as your retirement fund meaning you will have to sell it and free up cash? Where will you live then? A house is different than a condominium and a city is different than the suburbs or the rural areas.

Money is the substance that allows all of these elements to come together. Once you know where you are living, with whom, how you will spend your time, what you are motivated to do etc., then the question arises: How am I going to pay for all of this? The analysis of your assets, liabilities, income sources and expenses are now put into the equation. The starting point for the discussion is the expenses because this defines what you need for your retirement. The income is the coverage of these expenses, with assets and liabilities translating into future income. The process of liquidating assets slowly to smooth out the cash flows would allow you to achieve your goals such as leaving an inheritance, paying the tax authorities, and any other goals that you have.

Retirement is a new phase in someone’s life, similar to getting married, having children, starting a business or moving to a new city. Why not give it some thought?

Do you want to: Learn how the world of money really works without the need of a time consuming or expensive course of study? Discuss what you want to achieve according to your horizon? Restructure your finances to achieve your goals? Advice that is not affiliated with any institution or any product – an independent opinion?

Your Path to Becoming Financially Free And Genius

So you decided to become financially free. That is a genius decision. Having to worry about money constantly is bad for your health and your wallet. Living in constant fear of creditors or collection calls is a nightmare, and one you can avoid.

But how do you start? Life is expensive, especially if you have kids or a previous debt. Sometimes it may seem impossible to get out of your current situation. However, if you live in a free (or relatively-free) country and you are willing to make some sacrifices (sorry, nothing comes for free these days) you can significantly improve your financial status in the very near future.

Step 1 – Get Out of Debt

If you are in debt (except for a mortgage which you pay on time), you should first get rid of it. Debt is like an investment going against you, which means the more time goes by, the less money you have. Being in debt is an emergency, and should be treated as such. Your time and resources should be aimed at getting out of debt – paying more than the minimum payments (which are mostly interest payments), bargaining for more money, and most importantly – not getting into more debt. If you find yourself in a hole, stop digging.

If you need help, consider contacting debt relief specialists who will create a personalized plan that will help you leave the days of debts behind. Even without them, there are several methods to get out of debt quickly (prioritizing by interest rate or total money owed). Just pick one that works for you and stick with it. Discipline is key here. When you are debt-free, no creditor has power over you.

Step 2 – Stop Incurring More Debt

When you’re debt free, stay that way! Only buy what you can afford right now. Using a credit card? Pay it off in full each month. Don’t let more debt enter your life, since it only works against you. Make sure your expenses are less than your income and don’t postpone any payments. Interest on them can be deadly.

More importantly, don’t take loans for everyday expenses. Loans should be taken only to buy assets which will increase in value or help you generate more income (such as well-thought business loans). Personal loans can drown you in debt and you should avoid them at all cost. If you want something, save towards it. Don’t borrow now and work for years to pay it off. Remember: in debt, interest works against you.

Step 3 – Create Emergency Reserves

Once you owe nothing, you can start working for yourself rather than others. Calculate how much you spend each month on average and start saving towards a sum that will last you for six months. For example, if you spend $3,000 each month, you need to save at least $18,000 in your emergency reserves. These reserves should be saved in a savings account or any investment which does not decrease in value and can be cashed in almost immediately.

Use these reserves only for emergencies – if you get fired or have a huge necessary expense which cannot be paid off your regular checking account. This money is not for travel, buying a boat, or purchasing jewelry. Its sole purpose is to save you in case of an emergency.

Cannot Save? That’s Not True

If you think “there is no way I can save such sums of money”, you are mistaken. Since you are debt free, you already have an income equal to or larger than your expenses. Now you can (and should) go both ways: increase your income and decrease your expenses. This way you will save money much faster.

First, see how you can get more money from your job. Ask for a raise, take a side-job if possible. Negotiate hard and you will get what you want (of course, don’t burn bridges. You still need a job). If you’re willing to take on some risk, start a side-business. Everyone has something to sell, and today it’s easier than ever to sell online. There are also many companies that let you work from home (for example, some telemarketing jobs), so you can use that time as well. Of course, leave some time for yourself.

Secondly, every time you spend money, no matter if it’s a small or large sum, write it down. At the end of each month take a look at your expense list and think which expense was unnecessary. It can be difficult to lower your standard of living, but it’s always smart to live below your means. When you want more, increase your means.

Look at your home insurance and car insurance policies and see if you can save something. Perhaps you can get the same coverage for less, which can save you a fortune in the long run.

Step 4 – Get Your Credit in Order

If you were in debt, your credit score is probably very poor. This is a situation which you have to resolve, since a big part of our financial lives depends on that score. It may prevent you from renting a house or cause you to pay heavily for an emergency loan or mortgage (it is HIGHLY recommended to NEVER take an emergency loan, but when you reserves run out and you’re out of options, it can be a temporary fix).

Improving your score is a hard task, but since you’re out of debt, you should be able to pay off your credit cards entirely every month. You can also try some credit repair services if you think they may help you. Most of them have free consultation, so use it before you make any commitment.

Step 5 – Save and Invest

This is where freedom begins. You were in debt, which is investments working against you. Now you will finally have investments working for you. Each and every month take what you saved and put it in an investment account. Don’t go crazy – invest in stocks, bonds, real estate, and other investments that you understand. After you invest, just forget it’s there. It’s not meant to grow ten-fold in a year. But over time, as you invest more and reap the benefits of compound interest, this sum will grow larger. The more you save each month, the faster you’ll reach financial freedom.

Step 6 – Financial Freedom

This is your goal. Being financially free means, at least for us, that you don’t have to go to work in order to sustain your current standard of living. In other words, your passive income (income not generated by being an employee but “passively” – dividends, rent, etc.) is larger than your expenses. This is what financial freedom is all about – choices. In this case, you don’t have to work, but you can choose to work (for an even larger income). You become the owner of your own time, your greatest, irreplaceable asset. That is the true meaning of freedom.

Of course, the term “passive income” is misleading. Nothing is ever passive. All those investments must be handled carefully, which also takes time. However, it takes much less time than working for eight or nine hours a day. The rest of your time can be spent on improving your health, being with your family, or reading books. You decide. You choose.