While the financial planning process allows you to put plans in place for the future, it also can have immediate benefits. Take control of your financial future starting today. These 5 tips can help:
1 - Create a spending plan.
Some people call it a budget, but it can be helpful to think of this tool as a spending plan because it’s a work in progress — it adapts as your resources and goals change. This chart illustrates how a household might spend its money for the month. Your family’s picture will vary, but the important thing is to know where your money goes each month.
Where does your money go? Source: Bureau of Labor Statistics 2015
2 - Start saving.
A fundamental yet often overlooked priority in the financial planning process is cash reserves and savings. It’s a good idea to have enough to meet your needs so that you don’t have to rely on costly credit. Your cash reserve and savings needs may vary based on: your age, your dependents’ ages, your income level and your expenses.
Unexpected spending needs
3 - Get insured.
The financial planning process should include a discussion about protection capital and how much you may need to fulfill your financial goals if something should happen to you. This chart illustrates the role of insurance in financial planning. The protection bar is a “substitute” for the future money that would be there if you were providing for your family.
What are your protection needs?
4 - Begin investing.
When is the best time to start investing? Now. Procrastination is your worst enemy. Time is a fixed commodity, and you are using it up every day you wait. Time cannot be replaced. In this illustration Polly invested much less money than Pete, but at age 70 she has more.
Tale of two investors
The assumed rate of return is not a guarantee, and investments that pay higher rates of return are generally subject to higher risk and volatility. It is possible to lose money by investing.
Return figures are for illustrative purposes only and do not represent the past or future performance of any actual investment. Example assumes investment is made at the beginning of each year and the reinvestment of all earnings but does not take into account any applicable fees or expenses or any taxes (unless otherwise noted).
5 - Determine your retirement price tag.
That price tag—essentially the cost of your retirement— takes into account your goals and the lifestyle you wish to lead in retirement. It also factors in housing, utilities and bills, health care expenses, inflation and other risks. One rule of thumb is to expect to spend about 85% of your pre-tax income in retirement. Use the rule to help estimate your retirement price tag.
This information is provided for informational and educational purposes only.
The information provided may include references to concepts that have legal, accounting and tax implications. It is not to be construed as legal, accounting or tax advice, and is provided as general information to assist in the understanding the issues discussed. Neither Waddell & Reed, Inc., nor its financial advisors give tax, legal, or accounting advice. You may want to consult with your accountant or tax advisor to discuss your personal situation.
Past performance is not a guarantee of future results. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance.
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