Financial Planning for the “Yacht-less”
Financial Planning Isn’t Only for the Rich
An investment in knowledge pays the best interest. --Benjamin Franklin
How are your finances? If that question makes you want to run screaming into the woods, good news, you're not alone! In fact, Americans, as a people, aren't very good at managing their finances. We've racked up $92 billion in credit card debt as of 2017 and 1 in 4 people report having more credit card debt than savings.[i] We owe $1.5 trillion in student loans.[ii] On top of that 55% of people feel lost when it comes to long-term saving and stable financial plans.[iii] That adds up to a lot of people wandering the financial landscape lost and ill-prepared for the future. The good news is, this course can be corrected. This article aims to help get even the most confused or debt-laden onto a better financial path. Becoming financially stable is not only good for your bank accounts and bills, but it's also actually good for you - Mind and Body. Being in debt is stressful, it puts strains on relationships, makes it harder to buy homes, change careers, or recover from unforeseen life-events. On top of all that, being stressed about money is bad for overall health. On the flip side, financial security can be beneficial to your overall mental and physical well-being.
Looking First at Your Financial Health
The first step to financial stability is getting everything together in one place: your accounts, your debts, your expenses, all of it. You must first see what's working, what's not, and where your money goes. So, the first step is to gather all that information. Now, you can look at how much you are actively spending and start to understand how much you will need to pay off any debt, to be able to save and to reach your financial goals (home ownership, starting a business, retirement, education, etc.) The key to this step is to log in every penny, after all, it can be shocking to realize how much money we spend without thinking about it (average American spends $1,100 on coffee per year alone[iv] and saves less than 5% of their yearly income[v]). Putting together all your money moves can help you understand your relationship with money and help create a realistic budget. Seeing how much goes in and how much goes out, and factoring in all the silly ways we nickel and dime ourselves can be quite eye-opening. The process of getting all your financials together can be emotionally taxing, and stressful, but it is impossible to plan a journey without first locating where you are starting.
Looking Ahead to Where You Want to Be
The next step, once you have a comprehensive understanding of your finances, is to set the goals for where you want to be. This step is vital to achieving your financial goals because it is the measure of your progress. Ideally, you will have long-term goals (having a certain amount for retirement, for example) and shorter-term checkpoint goals (having enough emergency savings) and mid-point goals (paying down/off credit card debt and student loans). If you have a partner It is vital at this stage to confer with them, and make sure that the goals align for everyone. Paying off household debt, maxing out workplace 401(k) contributions, downsizing, where you want to retire, etc. need to be shared with a partner, and a joint decision made. Making sure everyone is on the same page will also make any goals more attainable and relevant. You may feel overwhelmed that the goals are too far out of reach, or that your current budget does not allow for much room to pay off debt or save more.
You know where you are, you know where you want to be, the challenge often comes in figuring out how to get from A to B. This is where bringing in professional can really make the dream of financial stability a reality. With a little elbow grease, most people can get their finances in order, bringing in a professional though, can help streamline the process and greatly increase your chances of success. When looking for an advisor, you want a fee-based advisor who is a fiduciary. On top of being qualified, you also want an advisor that get along with, trust, and that you can be honest with. Our personal finances are very personal, so finding someone that you feel confident sharing this detail with is key.
The Long Game
Once you share where you are and where you want to be with your advisor, the two of you can make a game plan to get you there. The challenge here will be trusting in the process and practicing the discipline needed to stay on the path. The other thing to remember is your new financial plan is less like a crockpot and more like a garden. You will need to tend it and adjust things as they come up. Markets shift, life expenses happen, work situations can change, people get inheritances etc. so being flexible to revisit and adjust your financial plans as needed is important. With the help of a trusted advisor, you may notice your load lightening, your mood lifting, your stress lessening. That feeling? It's the feeling of financial security. Getting started may not always be easy, and like anything worthwhile, it can be challenging, but the benefits of reaching your goals are so very worth it.