The Best Practices for a Healthy Financial Life – Creating Your Financial Plan

Your training to live a healthy financial life began last week, with the Best Practices for a Healthy Financial Life: Getting Started, and just like starting a new exercise routine, you may be coming to the realization that your budget is more out of shape than you thought. It may be painful, at first, to track your spending, (after all, ignorance is bliss) but I encourage you to resist the urge to ignore your past habits. Much like reading healthy recipes and counting calories helps you to develop good eating habits – being aware of, and tracking your spending is the first, and most important step to achieving your goals.

During your “hire yourself” day, I encouraged you to read a good personal financial book to learn more about your own situation. If you read Shape or Men’s Health, you would learn the best exercises to get rid of stomach fat, or why sugar is bad for your health. Learning more about personal finance is no different than any other educational process – it most likely uncovered several issues that you now know you should address. Whether you realized that saving for retirement or for your children’s’ college education is a higher priority, or that you now understand why you should set up basic estate planning documents, you are ready to begin making your goals.

Whatever you goals may be, start by making a list.

This list is your map. It shows you where you are now and where you want to get to. With a bit of guidance, you’ll know what to do to accomplish your financial goals. Consider this your financial GPS (Goals and Priorities Steering).

Listen to Barry Glassman’s WTOP interview: Best Practices for Health Financial Life – Creating Your Financial Plan

GOAL: Save for Retirement:

At our firm, we have a $2 million minimum of investable assets to work with us. Here’s the reason I’m pointing this out – most of our clients did not inherent their wealth. They’re smart; they worked hard and saved over many years to accumulate their wealth. They made saving, particularly for retirement, a priority and the results are clear. Not everyone will save millions for retirement, but most people can save more for a retirement that may last 30 years or more.

The simplest way to save for retirement is through an employee-sponsored retirement plan like a 401k or 403b plan. Many employers offer a match of up to a certain percent (like 5%) of an employee’s contribution. That free money can really add up.

Setting aside even a small amount each month can make a big difference years from now when you’ll need it in retirement. Let’s say that you’re 30 years old and you save $2,000 a year for 10 years. If we assume an 8% average rate of return, you’ll have $198,422 at age 65.

Here’s a very cool tool from Bankrate.com that will show you what compounding over time can do for your savings – Compound Interest Calculator.

By starting early you accomplish two very important things:

  1. A habit of saving.
  2. The benefit of your money growing over time as dividends and interest earned are reinvested.

Even in your 40s and 50s, it’s never too late to save. There are some really great calculators to help you figure out how much you should be saving for retirement. Two of my favorites are:

GOAL: Save for College:

Most states and some private institutions sponsor college savings plan, known as 529 plans. They are the preferred vehicle for saving for college because of the benefits they offer:

  1. Contributions grow tax-free if used for qualified education expenses
  2. You may be able to write off contributions on your state tax return
  3. Dollars in a 529 plan are outside of the grantor’s estate, and you may continue to have control over whom the beneficiary is and how the dollars are invested

We have some great resources for learning more about saving for college and a review of the Best 529 Plans in the country.

GOAL: Create Basic Estate Planning Documents

In a previous article that I wrote for WTOP.com, Estate Planning: Three Things You Need Besides a Will (and why you need a will too.), I explain the 5 basic estate planning documents that everyone should have regardless of their wealth. These include a will, beneficiary designations, financial power and attorney, medical power of attorney and an advanced medical directive. A great resource to download these forms is FindLaw.com.

GOAL: Buy a House

The biggest hurdle first-time home buyers face is the down payment. Coming up with a large lump sum of cash may seem daunting, but for many people, it’s attainable.

To start, you need to know how much of a mortgage you can afford. Zillow.com has an Affordability Calculator to help calculate how much of a house you can afford based on your income, monthly debts and how much you plan to put down as a down payment.

To save for a down payment, you may need to seriously cut your spending. If you want to save $20,000 in two years, you’ll need to put aside $833 month. Now that you are tracking your spending, you’ll know what you can do without in order to redirect that money to your new home. You may have to consider extending your savings time frame based on what you can realistically save.

You may also qualify for down payment and closing costs assistance. To learn more about programs offered in your area and if you qualify, go to the Down Payment Resource Center.

GOAL: Hire a Financial Advisor

For some, hiring a financial advisor may make sense. Knowing what to do and when can be challenging especially if you’re financial situation is complicated or you want someone with the financial expertise to lead the way. To find a financial advisor, consider an organization like the Garrett Financial Planning Network. I’ve also compiled a list of financial advisors in the DC metro area that I have known and have great respect for. See my Review of the Best Financial Advisors in the DC/MD/VA Area.

GOAL: Share Your Risk

The final goal that I believe everyone should consider is learning more about what insurance coverage is necessary for them and their family. I focus on that in my next article, Best Practices for a Healthy Financial Life: Sharing Your Risk.

You’ve accomplished a lot so far on your way to leading a healthy financial life. Now, I hope you feel that you have the resources you need to help you establish and accomplish your financial goals.

Barry Glassman, CFP®

His vision for starting GWS was to deliver investment strategies and wealth management services typically available at the highest levels of wealth. Today, clients benefit from these sophisticated financial services targeted to meet their unique needs.
Barry Glassman, CFP®
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