Do you have some financial goals in life? Want to buy a house? Send the kids to college? Retire? To help fulfill those dreams, you need a financial plan.
Maybe you’re already having a hard enough time figuring out what’s for dinner. Never fear; we can help you create a financial plan. Let’s take a little walk through the process.
Getting Started with Financial Planning
Robert Siuty, senior financial consultant at TD Ameritrade, says a financial plan starts with getting your finances in order. An advisor will take a look at your personal balance sheet—that is, she will help identify your assets, your liabilities, your typical expenses, and your saving habits.
Next, the advisor will help you describe your larger life goals, such as retirement and education for the kids, for example. Other goals might include buying a house or remodeling the one you have, or even taking a big vacation.
Next, an advisor will ask about your sources of income, whether they’re consistent or more sporadic. That helps the advisor get an idea of how much you might be able to save, Siuty says.
Depending on the financial life goal, the advisor will ask some specific questions during the planning process. For example, when do you want to retire, and what does retirement look like to you? Where do you envision your kids going to school, and how much assistance do you want to give them? If you want to buy a home, questions will surround down payments, home costs, and ongoing expenses.
Saving vs. Investing: It’s About Time
Researchers from Boston College say the difference between saving and investing is time. “Generally, we save for short-term goals and invest for long-term goals,” they said.
If you plan to spend the money in a few years or sooner, you want savings. Investing is for long-term goals like funding your retirement or a child’s college education, the researchers say.
Consider creating goal buckets for different time periods. For example, look out one to five years, five to 10 years, and 10 to 15 years, and know which savings and investments are allocated for which buckets. That could give you more confidence about your financial life goals and how to plan for them.
For example, your ideal retirement date may be as much as 30 or 40 years in the future. A child’s college education may be 10 or 20 years off. A kitchen remodel may be just a few years away.
And don’t forget to create an emergency fund, which can be tapped when the car breaks down or a household appliance needs to be repaired or replaced.
Most of us have multiple life goals. Siuty said financial planning can help you determine how to allocate funds for each. “You want to prioritize your goals and rank them by importance. Rank your top three or four goals, save or invest accordingly, and come up with an overall budget,” he said.
Hands-On Goal Planning
Evaluate your financial situation and continue to pursue your goals.