What you will learn from reading this article:
- How to start planning for your financial future today
- How to determine how much money you’ll need for retirement
- Proven personal financial planning strategies
- The Core 4 principles of saving
Whether you just opened your first IRA account or are nearing retirement, you can always take steps toward planning a stronger financial future. It’s easy to say you need personal financial planning, but how do you get started making a plan that works for you? Creating a financial blueprint will help you understand where you are and where you need to go. Think of it as a map to your financial freedom – a place where your money works for you, and you no longer need to work for your money.
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Financial planning advice: There is no one magic number for everyone
First of all, remember that life is not a competition. Don’t think you can do the same thing your coworker or sibling did with their financial resources and get the same results. You need to create a plan that meets your needs and goals, not anyone else’s. A plan that meets your needs, works for you and that you stick to – that’s success. Figuring out what you really want from life and setting up the correct financial planning tools needed to meet that desire will help you create a clear path toward financial freedom. Here’s how to get started:
Commit to honesty
If you try to build a financial plan that has you avoiding any fun spending for 10 years, you won’t stick with it, no matter the financial planning tools you try. Instead, just like with your physical health, an honest measurement of where you are now and an objective assessment of where you want your finances to be will help you build the plan to financial freedom that actually works. For instance, if you know you enjoy taking a vacation each year, account for that. Don’t try to convince yourself that you can go without taking a vacation for ten years – that’s bad for your bank account and your sense of well-being. Eventually, you’ll cave and go on an extravagant trip instead of taking a more reasonable getaway annually.
Decide on your number
How much money do you need to be financially secure, independent or free? What are your goals for your financial future, and how much money will it take to reach them? Take a guess and go with your gut – write that number down somewhere right now. We’ll wait.
Number written? For most people, it usually feels large. But keep going – some analysis will give you the financial planning advice you need to put yourself on the path to make your financial dreams a reality.
Assess where you are now
First, map out what you need for financial security. How much do you pay a month for:
- Your home (mortgage or rent)
- Your utilities
For most of us these five categories make up about 65% of our expenses. Take how much you pay per month, add them up and multiply by 12 – now you have what you’ll need as annual income to achieve financial security. Think of this as step #1 of your personal financial planning journey.
The best part? With some planning, it’s likely you’ll be able to hit this number through the money machine you’ve created along with your automated savings. That means not having to work to pay for your basics. For some context, the US average for basic annual expenses is $34,668.
Step #2 involves figuring out what you spend on clothing, dining, entertainment and your small indulgences or luxuries (anything from a magazine subscription to monthly massage can go in this category). Multiply that by 12 and add to your basics. Armed with this info, you’ll get to the number that will ensure your financial security. A few more calculations will let you plan how much you need to retire – check them out here. Financial planning tools in place, now it’s time for action.
Use proven strategies to build your financial future:
Save a set percentage of your income
You pay for your bills, but are you making sure that you’re establishing your future with a percentage of each paycheck? Commit to paying yourself first, before anything else. By saving a small percentage of your income, you’ll start to create the nest egg that will see you thriving for years to come. Saving $40 a week can help you save around $2,000 a year. But the trick is to automate this percentage so that you don’t even know you’re saving it. Maybe it’s 3% or 10% – maybe more.
Pick your number and then make that money automatically go to your retirement account. If you get direct deposit through your employer, you can usually get your earnings split into different accounts – take advantage of this feature so you don’t even need to spend time doing it manually. Otherwise, create an automatic transfer from your checking or other main account into your savings.
Build a money machine
If you harness the power of compounding – making your money work even when you’re not on the clock – you’ll see incredible returns over the long-term. It can be hard to visualize the results, but with your number in mind, you’re ready to think big and realistically.
Follow the Core 4
These fundamental principles of personal financial planning help you make the most of your savings, no matter their size or your stage in life.
- Protect the principal interest as much as possible
- Take only asymmetric risks
- Be tax efficient
- Be well-diversified
Looking for a more detailed breakdown of the Core 4? If you haven’t already, go learn more about the Core 4 and how it can work for you.
Think of your investments as going into three buckets – we also call this asset allocation. By mixing up your types of assets and where those assets live you’ll decrease your risk and increase your eventual returns. Turns out the saying “don’t put all your eggs in one basket” actually is good financial planning advice for a solid financial future.
Legal Disclosure: Tony Robbins is the Chief of Investor Psychology at Creative Planning, Inc., an SEC Registered Investment Advisor (RIA) with wealth managers serving all 50 states. Mr. Robbins receives compensation for serving in this capacity based on increased business derived by Creative Planning from his services. Accordingly, Mr. Robbins has a financial incentive to refer investors to Creative Planning.
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