As the old saying goes: “the best-laid plans of mice and men often go awry.” This adage is true for almost anything that requires planning, which includes your financial future. All too often, clients will figure out an outline of where they want to be in the next 10 or 20 years, but then they assume that once the plan is set, they can forget about it.
Unfortunately, that’s not the case. Even if everything stays stable for the next couple of decades (unlikely), it’s still imperative that you check up on your financial planning regularly to make sure that it’s all going well.
That’s not even to say that things may be worse than projected – in some instances, you may be able to put more away for retirement or adjust your investments to have better yields. In those cases, changing your plan accordingly is by far the smartest move you can make.
So, with that in mind, let’s look at the various elements that should be in your financial plan and see how they can impact your fiduciary future.
Ideally, the longer you work, the more you will earn. We’re not just talking about money you can save, but that your salary should increase in step with your job experience and career level. If you’re still making the same wage at 65 as you were at 25, then you’re probably not prepared for retirement.
As your income level changes, so should your financial planning. If you start earning more, then hopefully that means you can save more and invest in your (and your family’s) future. Obviously, other elements can affect how much of your income is available (i.e., expenses, which we’ll get into next), but theoretically, more money means better financial stability.
One thing that tends to happen as people’s salaries go up is that the cost of living does as well. When you start making big bucks, you move into a larger house, or to a more beautiful neighborhood, and so on. Thus, even if you make twice as much per year as you did before, you could still be taking home the same amount because you have more bills to pay.
Fortunately, your expense ratio (how much you spend vs. how much you earn) can be an integral part of your overall financial plan, which is another reason you need to monitor it and make adjustments regularly. Before upgrading to that new home, check to see how it will impact your long-term financial goals so you can make an informed decision.
Getting married is a joyous occasion for everyone involved, but it can be a boon to your financial well-being as well. Not only do you get better tax incentives, but you can pool your resources together to be better off in the future.
Unfortunately, while getting married can strengthen financial stability, divorce can be a significant blow to your long-term plan. Hopefully, that won’t occur, but if it does, then you need to take a hard look at your finances to see how it will impact them in the coming years.
As with getting married, bringing children into your life can affect you in profound ways. Now, rather than just saving for yourself and your spouse, you need to plan for things like clothes, food, and long-term expenses (i.e., college) for your child. As you have more children, your financial plan will need to change accordingly. Talk to your advisor each time so that you’re as well prepared as possible.
The old saying goes that there are two constants in life: death and taxes. However, for modern Americans, debt should be added to that list, as it’s something that virtually everyone will accrue. Whether it’s credit cards, a new car, or a mortgage, you will invariably go into debt at some point.
Thus, a significant part of your financial plan should be how to manage and pay off that debt so that it doesn’t follow you into retirement (or worse, affect your children when you’re gone). If you are making a large purchase that will put you into debt, that’s the perfect time to speak to your advisor to make any necessary adjustments.
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One element of your financial planning should be a life insurance policy. Although we won’t get into the various types of insurance you can get, having a policy is a must, particularly if you have children.
When starting a new insurance plan, you’ll want to talk to your advisor to figure out which one is best for your needs, as well as how it will fit into your overall expenses and long-term goals.
On the other side of things, you’ll also want to make a plan for when you do pass so that your finances are taken care of when you’re gone. Preparing and updating a will, trust, or estate is essential, particularly as new family members are added or taken away (i.e., marriage, birth, or divorce).
Finally, as your income increases, so will your taxes. On top of that, any money that you are putting away for retirement can be taxed, so it’s imperative that you understand how much will be taken out, as well as how to minimize that number as much as possible.
Talking with an advisor regularly can help you understand any changes in the tax code (like the recently passed bill) so that you can make adjustments as necessary. Although paying taxes will never go away, you can figure out the best way to do it so that it won’t adversely impact your finances.
Bottom Line – Financial Health is Fluctuating
Just because you’re in a good spot financially right now doesn’t mean that it will stay that way forever. You never know what the future holds, so it’s crucial that you stay on top of your financial plan whenever something comes up. Even if things are running smoothly, it’s still a good idea to check in to see if there are any ways you can make your money work harder for you.