Financial Planning 101

Develop a financial reserve

Being prepared (with four to six month’s living expenses) can help relieve financial anxiety. Save a set amount each paycheck by setting up an automatic, recurring transfer to your savings account. The fund will grow, and you may not even miss what you save each month.

Get rid of high interest rate credit card debt

If you are carrying over balances and paying interest, cut down on your card use, pay more than the monthly minimum, or find a different credit card with a lower interest rate.

Did You Know?Develop a household budget

To make the process easier, call it a household spending analysis. Understanding how you spend your money can highlight how you can spend less. Consider using financial management software, like Quicken, to help you organize your finances and save time.

Save for retirement

Your retirement lifestyle is dependent on decisions you make before retiring. Take full advantage of your 401(k) or other employer-sponsored retirement plan. Participate in the plan, contribute as much as you can, and try to get any available employer match. Then consider contributions to an IRA or Roth IRA.

Be sensitive to taxes

No one likes to pay more income tax than necessary. Keep good records of potential deductions like mortgage interest, state and local taxes, charitable contributions, and certain medical expenses. Also, take advantage of tax deferral or preferential tax treatments on your investments. Consider using tools like Turbo Tax Online to make filing your taxes as quick, easy, and accurate as possible.

Have a sensible investment strategy

Start with an asset allocation goal that divides your investments into equity, fixed income, and cash investment categories based on your time horizon (age) and risk tolerance. If you are younger and more comfortable with risk, allocating a larger portion of your funds to equities may help you earn the higher returns stocks have historically received. However, remember all investments involve risk, and past performance is no guarantee of future results.

Be adequately protected

Insurance provides protection against the unknown. Make sure your possessions, life and health are adequately insured. Examine the level of deductibles and the coverage amounts to get the protection you need at the lowest cost. Consider an umbrella liability policy for additional coverage above what is provided in your homeowner and auto policies.

Take care of estate planning

A well thought out plan lets you decide how your assets will be distributed and can reduce estate taxes. It is important not to forget your durable power of attorney for finances and for healthcare. These two important documents spell out who you would like to make financial or healthcare decisions if you are incapable of making them yourself.

Organize your records

Having a system for handling expenses and keeping organized records saves time and reduces stress.

 

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