What new goals are you going after in 2019? Improving your physical health by fine-tuning your diet and adding a new exercise routine? Focusing more on improving your emotional well-being and strengthening relationships in your life? Or is your focus primarily set on taking your career to the next level this year?
These are all worthy goals, however, we’re here to remind you to include one key goal that many overlook: setting up your financial plan. For most, it’s one of those things you know you should do but keep putting off. So why not make 2019 the year you finally take care of this important aspect of your financial security? After all, having a solid plan in place is a vital first step toward achieving your financial goals. Here’s how you can get started.
1. Create Your Budget
This may seem obvious, however, it’s so often overlooked by so many people I meet. The foundation of any financial plan is knowing exactly how much you earn, how much you spend, and what you spend it on. So, your first step is to record everything you spend for at least three months (a full year would be even better). This can be done by entering your expenses into a budgeting app on your phone, or automating the process with a service like Mint, Quicken, or Clarity Money. You can even check with your bank to see if their app has one of these tools built in. Once you have recorded your living expenses, calculate your average monthly spending for various categories such as: food, entertainment, utilities, clothes, gas, insurances, etc.).
If you’ve never done this before, I bet the results will surprise you! Let me know if you’d like me to send you the budget form I use with clients for your own use.
2. Set Financial Goals
Now that you have a clearer picture of where you are now, it’s time to define where you want to be in the future. When would you like to retire? What amount of annual income will you want in retirement? How much money will you need in savings and retirement accounts to afford this quality of life? And while retirement is a major part of financial planning, it is important to include all of both your short-term goals and long-term goals. Do you want to move into a new lake house in 10 years? Pay for your children’s education? Donate to charities? How often do you buy a new car? Write it all down and make sure your plan is set to help you achieve all of your goals, both big and small.
3. Design A Savings Road Map
Once you’ve defined where you are now and where you’d like to be, it’s time to develop a plan to bridge the gap. Assuming an average income and return on your investments, how much do you need to put away each month to reach your goals on time? Does your budget allow for this? If not, what steps can you take to either reduce your monthly spending or increase your monthly income? Or, perhaps you already have enough assets saved, but aren’t sure how to invest. What rate of return will you need on your investments? How much risk are you comfortable taking?
4. Put Together Your Portfolio
Unfortunately, stockpiling your savings under your mattress won’t get you very far, especially because over time, inflation could eat away at your purchasing power down the road. The key to achieving your financial goals is creating an investment portfolio strategically diversified to meet your personal needs both short-term and long-term. The earlier you get this started, the more you’ll benefit from the exponential power of compound interest.
5. Define Your Exit Plan
The last part of your plan is creating exit strategies for each goal. You need to be able to access your money when you need it. If you skip this step and just dump all your savings into retirement accounts, you’ll be in for an unpleasant tax surprise when you want to pay for the aforementioned lake house or college education. So keep in mind when you’ll need to access your various accounts and think through how to set up your portfolio accordingly.
6. Schedule Check-Ins
Once you’ve set up your plan, you’re well on your way, but your work is not quite finished. Just as important as developing your plan is taking the time to periodically maintain it. As I tell my financial planning clients: “The plan we build today will never come true”. That doesn’t make sense, does it? I then explain to clients that they are bound to experience many life changes before and during retirement, and investment markets certainly don’t move in a straight line. Therefore, it’s imperative to monitor your plan and adjust accordingly. Check-ins are easily brushed off and forgotten, so it’s best to schedule them into your calendar. As a simple rule of thumb, we suggest you aim to review your progress every quarter in the first year and at least every six months thereafter. Obviously, whenever your life situation changes (income change, change in expenses, change in goals, family changes, etc.), you should review your plan and make necessary adjustments.
As you can see, establishing a financial plan via a tried-and-true process can be simple, but it’s definitely not easy. You may quickly find yourself hung up on the details and become quite overwhelmed. Fortunately, there are professionals ready to help you through every step. At Haddon Wealth Management, we are expert in designing personalized financial road maps to help you achieve your goals. If you’d like to learn more about how we can help you set up your financial plan, call us at (856) 888-1744 or contact us online to schedule a complimentary get-acquainted meeting.
Gregory M. Hart, CFP® is the founder and managing director of Haddon Wealth Management, LLC, a registered investment advisory firm that provides comprehensive wealth management (in-depth financial planning and sophisticated investment management) for clients who value a relationship-driven approach that delivers customized solutions. Based in Haddonfield, New Jersey, Greg works with clients throughout the Delaware Valley, as well as nationwide. To learn more, connect with Greg on LinkedIn, visit our website at www.haddonwealthmgt.com, or call (856) 888-1744 to begin a discussion.