People relate to October in a lot of different ways — Halloween, crisp autumn weather, hayrides, scarecrows. But financial planning? Yes, believe it or not, October is Financial Planning Month.
It’s scary (pun intended) how many folks don’t have a financial blueprint in place to navigate the present and future. Yet it’s something that can reap significant rewards when it comes to managing money.
So where do you start? A good jumping-off point is to set specific goals. For instance, if you’re looking to buy a car, your goal should be to set aside a certain amount of money each week for a pre-determined down payment. Another goal could be to pay off debt from a credit card within a certain amount of time.
Take some time to think about both long-term and short-term goals that you want to achieve. Here are additional suggestions for developing a sound financial plan:
- Be realistic. Set goals that are reasonable and attainable. Sure, it would be great to set aside $15,000 annually for retirement, but is that an affordable goal given your overall budget?
- Speaking of budgets, create a monthly budget and try hard to stick to it. Knowing your monthly income and expenses helps strike a financial balance and provides a solid foundation for an overall financial plan.
- Don’t over-plan. Develop a strategy that is simple and straightforward, instead of trying to go in several different directions. This makes it easier to stay focused.
- Be prepared for the unexpected with a “rainy day fund.” Experts recommend that an individual should set aside at least three months’ worth of salary for unplanned situations, such as a layoff or major home repairs. And it doesn’t hurt to plan for the expected, too, like putting aside savings for a roof that you know will need to be replaced in five years.
- Analyze your credit card debt. What cards have the highest interest? How long will it take to pay off each card if you’re only making minimum monthly payments? What card(s) should you avoid using?
- Start saving now for retirement. If you haven’t already, set up an IRA or take advantage of an employer-sponsored plan such as a 401k. The sooner you begin saving, the better off you’ll be for your “golden years” thanks to compounding interest. And if your employer matches contributions for a 401k, make the most of that opportunity by contributing as much as you can, including the maximum amount matched by your employer.
- Understand the difference between needs and wants and how they impact your financial plan. For instance, if the roof of your house is leaking buckets of water, you’re going to need to repair it. On the other hand, the latest model of your favorite car may be something you want, as opposed to something that’s a necessity. A new car brings with it added expenses, such as monthly payments and higher insurance rates. Think hard before you invest in the wants in your life.
- Realign your investment portfolio on a regular basis. Your tolerance for risk and your financial demands tend to change the closer you get to retirement, so your portfolio should reflect those changes.