Financial Freedom Week 9 Recap: Financial Planning
Posted Feb 25, 2015
Most people understand the importance of a yearly physical checkup, but not enough take that same advice when thinking about their finances. A yearly financial evaluation is a great routine to start practicing! First off, are you putting money away? Peter brought up a great point this week that an increasing number of young people are not planning for retirement. A lot of 20 something’s don’t even think about savings. Something to consider for people who are not putting money away is the rate at which savings will grow over time. Putting a little asidenow can make all the difference in ten years. Ten additional years of early savings can end up creating thousands of additional dollars in the account when a person retires.
Before you start saving though you need to figure out how much you can afford to put away. A good recommendation is 10-13% of your gross pay. If you are unsure simply start budgeting out a month’s worth of expenses. Track how much money you spend in bills and food. Next take a good look at where you can cut and save. After you do this for a couple months you will have a good grasp on how much you need for expenses. Any extra money that you have left over you can start putting away into a savings account rather than spending it.
Once you have a savings account established for two or three months you will know how much you can then put towards a 401K plan. Check with your company or employer and see what they offer for financial matching. This is a fantastic way to advance your retirement goals, as it increases the amount of money available to devote to the future beyond what a single stream of income can allow for.
Returning to the annual evaluation, if you are already contributing to a matching fund think about increasing it every time you get a raise. You would be surprised how many people simply forget about this option and never increase their contributions.
Another good idea that Peter brought up was to invest in your children's future. Frequently parents will receive substantial amounts of cash when they have kids. Instead of buying another toy look into purchasing Disney stock. When you get the certificate hang it up in their room. As they grow older you will have a valuable tool to aid you when teaching them about smart investing.