Financial Planning Basics

Taking care of your long-term financial affairs can be one of the easiest things to delay. It often seems that dealing with daily finances and the other activities of everyday life take precedence over the need to create a workable financial plan.

Here are some ideas that will help you come up with a plan that will cover the basics and put you on the road to a secure financial future.

Develop a Financial Reserve

Being prepared (with four to six month's living expenses) can help relieve some of the financial anxiety we often feel. Consider setting up an automatic recurring transfer with some amount being deposited into a BB&T eSavings account from each paycheck. The fund will grow, and you may not even miss what you save each month.

Get Rid of High-Interest-Rate Credit Card Debt

Interest rates on some credit cards are high. If you are carrying over balances and paying interest, reduce or eliminate this expense altogether by cutting down on your card use and paying more than the required monthly minimum. Also, you may want to consider getting a different credit card that offers a lower rate.

Develop a Household Budget

This is often one of the most dreaded parts to being financially responsible. Determining how you spend your money will probably lead to identifying how to reduce some expenses. BB&T recommends the easy to use financial management software Quicken® to help organize your finances.

Save for Retirement

Your financial lifestyle during retirement is largely dependent on the financial decisions you make before retiring. No longer can you count on Social Security and traditional company defined benefit plans to be the cornerstones of your retirement. Instead, you must take steps of your own to provide for your retirement.

Start with your employer's retirement plan. Many plans, especially 401(k) plans, make it easy to save, offer investment flexibility, and enable you to reduce your taxes. Many plans also have provisions for the employer to make contributions on your behalf. Review your plan details and contribute as much as you can—at least enough to get the full employer match.

If you have taken full advantage of company-sponsored plans, and can still afford it, consider contributions to an IRA or Roth IRA. The tax-deferred compounding aspects of these plans enable your funds to grow faster.

Be Sensitive to Taxes

No one likes to pay more income tax than necessary. Be aware of the opportunity to deduct certain items like mortgage interest, state and local taxes, charitable contributions, and certain medical expenses. Also, consider the preferential tax treatment from capital gains on your investments.

Have a Sensible Investment Strategy

Start with an asset allocation goal that divides your investments into equity, fixed income and cash investment categories. Your initial asset allocation should be based on your time horizon (age) and how you feel about taking risks. The younger you are and the more comfortable you feel with risk, allocating a larger portion of your funds to equities may help you earn the historically higher returns of stocks. 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.

Take Care of Estate Planning

Having a well thought out will can ensure that your assets are distributed as you desire on your death and can help reduce any estate taxes that may be due. But estate planning is more than reducing taxes. Your estate plan should include documents that designate someone to make financial decisions if you are incapable of making them (durable power of attorney for finances) and that designate someone to make medical decisions if you are incapacitated (durable power of attorney for healthcare).

Finally, Organize Your Records

Having a system for handling monthly expenses can reduce the stress and time needed to handle your everyday finances. Using a system to keep track of investment and tax records will make every tax season less taxing. Keep other important information organized. Having to hunt for the name of your insurance agent, an account number, a frequent flyer number or any other bit of information can be a waste of time.

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