A personal budget is a key piece of working toward financial goals, but it can also bring up a lot of emotions for many.
It is easy to look at a budget through a negative lens—one that will deprive you of the fun of making spontaneous purchases and limit what you can do with your money. However, a well-defined budget will actually give you more peace of mind because you will know you are better prepared to pay your bills, reach your savings goals, and be there to help those who are special to you.
Consider your budget the guardrail on your road to financial freedom. In the most basic sense, a budget is an estimate of your income and expenses over a particular period of time, usually a month or a year.
It may sound simple, but only 41 percent of American households follow a budget, according to a U.S. Bank survey. That could be why the average American has $51,900 worth of debt, or why 69 percent of individuals in America would face significant difficulty meeting their financial obligations if their paycheck were delayed.
Don’t fall into that trap: Start by writing down your income and expenses on a sheet of paper, in a spreadsheet, or in a mobile app. There is no one right way to make a budget, but there is one very wrong way to go about budgeting: not doing it at all.
Everyone should be investing—but not necessarily in the traditional sense.
If you have college debt, you should be investing in paying off those loans. If your savings account is empty, you should be investing in a safety net.
If you are in the fortunate position of having extra money sitting in your checking or savings accounts between paychecks, investing some of it wisely may help you reach your personal and financial goals earlier.
An investment advisor will work with you to structure a portfolio that is customized to your personal risk tolerance, time horizon, and goals.
Benjamin Franklin once wrote in a letter, “Nothing is certain except death and taxes.”
Taxes may be one of life’s certainties, but they can also be one of life’s biggest surprises. Nearly every financial decision you make has tax consequences—whether good or bad.
There is nothing worse than carefully following a budget throughout the year only to be surprised by a large, unexpected tax bill in April. Well, maybe there is one thing worse: unexpected taxes during retirement.
A strong financial plan takes taxes into consideration at all times—not just in the spring as you begin to think about filing with the IRS. It is important to assess your basic tax liability and then find ways to legally and ethically minimize it.
Start by determining what tax bracket you are in, and then look at what kinds of accounts or credits you can use to reduce that tax burden, such as flexible spending accounts or child tax credits. Next, think about how your tax liability may change over time—especially in retirement—and plan accordingly.
The U.S. tax system is complex and always changing. Although commercial tax preparation software may make it easier for the average person to prepare their own returns, those programs do not offer the tax planning advice that a financial or tax advisor can.
The average student graduates from college with more than $30,000 in student loan debt, according to U.S. News data. You can help significantly reduce the future burden on your children and/or grandchildren by creating a college savings plan.
According to the 2020 College Savings indicator from Fidelity Investments, parents plan to cover an average of 65 percent of the total cost of college for their children—but by the time their child reaches college age, they are only on track to cover a median of 33 percent.
More families are realizing that working with a financial professional will help them reach their college savings goals. According to the Fidelity report, 40 percent of families consulted a financial professional in 2020 compared to 21 percent in 2007. Those families are more confident in their savings, too:
- Seventy-nine percent say it helps them with the college planning process.
- Seventy-one percent say they are closer to their goal because of working with an advisor.
According to the Fidelity Investments 2020 College Savings Indicator Study, families who have consulted a professional have saved $25,000 toward college compared to the $15,000 families have saved without an advisor.
The loss of a family member is always a personal tragedy, but it can also be devastating financially. Only about half of all Americans have a plan to protect their families in the case of their death.
The percentage of Americans who own a life insurance policy has fallen nine points in the past decade to just 54 percent, according to the 2020 Insurance Barometer Study from LIMRA.
Take a moment to think about it: If you were to pass away suddenly, what would happen to your family? Could your spouse handle the mortgage and car payments? Would your children be able to continue trying new hobbies or pursuing their education goals?
It’s not that Americans do not think life insurance is important. In fact, according to that LIMRA report, the “intent to purchase life insurance is at an all-time high with 36% of Americans saying they intend to purchase life coverage in the next 12 months.”
Instead, the research shows that just a fraction of people actually follow through and buy the coverage because they are either deterred by the perceived cost of life insurance plans or overwhelmed by options.
A strong financial plan includes protections for you and your family in the case of a serious illness or death, and a financial advisor can help you find the right policy at the right price.
Your retirement should reflect the decades of hard work you’ve completed and allow you to live the life you and your family have dreamed of.
Retirement is the light at the end of the tunnel—but for many American adults, that light is looking pretty dim.
According to a report from the Federal Reserve on the economic well-being of U.S. households, many adults are struggling to save for retirement. One-quarter of all non-retired adults indicated they had no retirement savings or pension whatsoever, and 13 percent of those older than 60 reported the same.
A financial plan will help you avoid a situation in which you are depending solely or mainly on Social Security, Medicare, Medicaid, or relatives to take care of you when you can no longer work.
Whether you want to contribute a portion of your paycheck to your employer-sponsored 401(k), start your own IRA, or look at alternative retirement savings plans, a financial advisor can put you on the right track.
Your financial plan as it relates to retirement should take a number of factors into account, including how much you’re willing to put aside for retirement now, what kind of lifestyle you are hoping for during retirement, and at what age you would like to retire.
According to the Center for Retirement Research at Boston College, the average retirement age for both men and women has been creeping upward over the past few years. As of 2016, the most recent year for which data is available, the average age of retirement was 65 for men and 63 for women.
According to frequently cited research conducted by AARP in the ‘90s, Americans lose $2 billion dollars a year on probate, the legal process that wraps up an individual’s legal and financial affairs after their death. You can save your family headache (and financial burden) by creating an estate strategy.
An estate plan is a collection of legal documents that outlines how decisions about your health and finances should be made if you are incapacitated, as well as how your assets should be distributed when you pass away.
Estate planning is about more than creating a will—although that is a crucial step in the process. It is also about:
- Collecting healthcare and financial documents in a safe location
- Designating beneficiaries on bank accounts and retirement plans
- Taking the steps to manage your tax liabilities
- Protecting your business or investment interests
It may seem like a lot of work to create an estate plan, but think about how much harder it would be for your loved ones to try to do it for you after your death. An organized estate plan is a gift from the grave to your loved ones, and there are professionals who can help.
Monitor Your Progress
Financial planning is not a “set it and forget it” process. Reaching your financial goals requires you to regularly monitor your progress and fine-tune your plan. When reviewing your financial plan, examine how well your behavior aligns with the plan and consider whether your goals have changed at all.
A few questions can help you assess your progress:
What is in your accounts?
If the amount of money in your savings, retirement, and investment accounts is growing, then you are likely headed in the right direction. Calculate your rate of savings every few months and ask yourself if it is sustainable or if you can even afford to bump it up a bit.
How much debt do you have?
Have you been able to consistently pay down any outstanding debt? What is left on your mortgage or car payment?
If your credit card statement is growing as much as your retirement account, you will likely need to adjust your rate of savings—at least temporarily.
It is important to constantly monitor debt and have an aggressive plan for paying it down. Once free from liabilities, you will have more freedom and flexibility to build up your assets.
Are you closer to reaching your goals?
This is the most important question to ask: Are you on track to reach your goals? Is the timeline still realistic? It’s OK to have minor setbacks.