Such a scary term. Many people hear those words and have one of two reactions.
“Financial Planning? Yeah, I know the basics, but it just takes so much to get it going, I’m not sure it’s worth it. I also don’t have the time to be online all the time, looking at the market and making trades. I have a life!”
Others, including this blog’s author, were for the longest time in the following category.
“Financial Planning? Maybe tomorrow….”
So, how can I get start investing?
Thankfully, there are some general tips for regular people like us to determine not only how to get going with a financial plan, but how to stick with it. Read on for some great information!
The easiest tip is….
1. Ask yourself why money is important.
The importance and value of money to you personally will guide you on every financial planning decision you make. The basic theory is that it is easier to move forward with a plan once you know what you want the plan to accomplish. Whether your eventual goal is having time to raise a family with minimal time out of the home earning money, or setting yourself up for a great retirement, or another reason entirely, you need to know where you want to go before you get in the financial planning “car”.
Another simple tip is
2. Know your starting point.
Before you get in your financial planning car and set off down the road of life, you need to pack your car and know what your assets are. You have to determine your net worth, which is most simply described as how much you possess in assets, and what your liabilities are. However, do not get bogged down in guilt over your liabilities, like student loans, past failed business ventures, and other familiar financial pitfalls. These happen to everyone; you are merely laying out how much gas you have in the tank of your investment-mobile, and how much weight in baggage you are hauling in the trailer behind. Once you know those numbers, you are almost ready to get on the road.
The next tip is
3. Think of budgets as an awareness tool.
Budgets should be seen as a tool to help track your spending, not as a punishment. Tracking your spending, based on your baseline budget, lends awareness to your spending habits. You may not be aware of it, but you could be spending hundreds of dollars each year on a small subscription service contract, like an online film streaming account; you may come to realize that this particular purchase is not a necessity for you, and you could therefore save that money.
Which leads to the next tip –
4. Save as much as is reasonable for you.
Financial advisors the world over have argued for years about whether there is a one-size-fits-all approach for saving, and if so, what is that magic number. For many people, this is where the planning falls apart. If you hear, over and over, that you should save “thirty percent” of your income, or some other arbitrary number, then panic may set in before you can blink twice. Let me lay your fears to rest.
There is no magic percent that everyone can save every week, month, or year.
Everyone’s individual situation is different. Everyone has a different investment-mobile, with different gas tank sizes and trailer-loads.
Therefore, the most reasonable expectation for the majority of people is to save as much as is reasonable for you.
You. Not Joe down the street. Not Sally Save-a-Lot from Savingsdon.
You. You save what you can.
If that means one day a week, you make a lunch instead of buying out, then do that.
If you hold a potluck meal every Sunday night with everyone in the family making something from whatever is in the cabinets, then do that.
If, instead of immediately purchasing items online, you can put them on a 72-hour hold, to see if you still want them 72 hours later, you may find you spend less on “splurge” type items.
The next tip is two-fold….
5. Buy only enough insurance you need, today, and pay off as many debts as possible.
Life insurance is something many people put off, either through a lack of perceived need, or through fear. The thing about life insurance that most people don’t understand is it is about replacing a loss of economic stability, after the person with the policy is gone, rather than filling the emotional gap left by the loss of the person. In that light, it becomes easier to purchase a strictly “just enough” insurance policy, and move on.
Paying off debt can be viewed as an investment, when you take into account the extreme expense that comes with postponing paying the full amount. Interest can balloon in the blink of an eye. Paying off debts as soon as possible is the best option, when you are looking to save money.
So, what else can I do to plan ahead, financially speaking?
There are more tips than the ones we talked about today. The next few tips deal specifically with investments. These tips will be covered in the next post
Investment Tips for Regular People, Part 2