All too often, working professionals in the United States tend to avoid personal financial planning. Many figure that earning a reoccurring paycheck is satisfactory wealth management and neglect to worry about saving and smart spending choices.
However, this is a crucial mistake that the Maryland financial planning advisors at XMLFG see all too often and can have serious monetary consequences in the future if left unattended. It is essential to put away money earned on every paycheck to be used for a laundry list of necessities—the amount saved is insignificant compared to the sheer fact that the something is being set aside.
To prepare a personal financial plan, here are some helpful tips on how to get started:
- Determine how much to save.Although it may appear simple, most American workers only contribute to their savings when a financial emergency arises. Generally, a sound savings plan includes a targeted monthly and annual goal regardless of what actual number is set.
- Account for unexpected expenses.Whether it be a broken washing machine or child with a broken arm, unexpected expenses happen on a regular basis and are a simple fact of life. Because of that, it is important to have a few months’ salary saved as a cushion. Should one need to take cash from that account to resolve a short-term financial problem, they’ll have the funds to do so. (Just make sure to refill it as soon as possible!)
- Decrease the potential for any and all risks.Typically, one will hold several different insurance policies. Between auto insurance, homeowners insurance, and everything in between, it is a good idea to analyze what would happen in the family breadwinner were unexpectedly unable to work. If a family would be unable to survive this case, contact an insurance agent to find a reasonable premium that will better protect the unit’s finances in the event of an emergency.
- Financially reward yourself before all others.When it comes to saving, it is vital to pay oneself before anyone else. If one has access to a 401(k) program at work, take advantage of it by talking with the human resources department about incorporating automatic deductions into that account. If such a program is not available, many employers will send a second check that can be deposited directly into one’s savings account.
- Incentivize monetary success.Keep in mind, saving for one’s retirement isn’t about prohibiting oneself from making financial decisions that fall into the “wants” category. Should one reach their targeted annual savings goal, they can reward themselves with a small spending splurge. Because one will have money accumulating in a savings or retirement account, an occasional “treat” won’t be unmanageable.
Despite the common belief that financial plans are for the extremely wealthy, the retirement planning consultants at the XML Financial Group know the importance of being prepared for the future—regardless of what one’s income level is.
While having a comprehensive financial plan can benefit anyone, most Americans aren’t aware of its value. According to the 2012 Household Financial Planning Survey, only 31% of financial decision makers say they’ve created a financial plan for their families, either on their own or with professional help. The survey, conducted by the Certified Financial Planner Board of Standards, defines a comprehensive financial plan as one that accounts for: savings and investments, retirement, education, emergencies, major purchases, insurance, and other financial goals.
Unfortunately, only a small number of Americans have set plans to cover even a portion of their finances. Results from the same survey showed that only 35% have a financial plan for emergencies while two-thirds have an idea of how they will meet any of the other five savings goals, such as retirement or a down payment on a house. It takes smart financial decision making to climb into a higher income bracket—a task that becomes increasingly difficult without a comprehensive financial plan.
For those still not convinced, here are ten other reasons why getting a financial plan should be at the top of any to-do list:
- Families can define their financial goals, often helping couples to get on the same page regarding spending and saving.
- Financial plans will help one see whether their goals are realistic and under what timeline.
- Comprehensive financial plans will help one see how to control their spending to eventually obtain goals.
- Creating a financial plan will make past or current money mistakes blatantly clear.
- Those who have a financial plan can easily measure their current progress towards future goals.
- Developing a plan surrounding personal finances will help to maximize money.
- Those with a financial plan are far more confident about managing money—the above survey found that 52% of respondents with a plan feel very comfortable with their savings and investments, while only 30% without share the same outlook.
- Financial plans can help identify potential future risks not previously thought of or discussed.
- Preparing for the future with a financial plan will help build personal wealth.
- Those with a comprehensive financial plan have the potential to live more comfortably than those without, regardless of what income bracket one falls into.
Don’t miss out on your chance to be prepared. Discuss your financial goals and options with the wealth management consultants at the XML Financial Groups. With unbiased advice completely tailored to the specific portfolio, our advisors assist every client in reaching their total financial potential.
For a free, no-obligation review, click here to contact the professionals at the XML Financial Group today!