Skip to main content

financial freedom

Less Stress and More Success with Proper Financial Planning

The Motley Fool (an investment advice website) reported in a 2019 article that one in five Americans has no money saved for their retirement. In addition, a third of baby boomers (people born between 1946 and 1964) have less than $25,000 in savings. That’s 25 million people, aged between 56 and 74, who if not already retired shortly will be.

On one hand, a person’s day-to-day expenses typically go down when they retire. There’s no more commuting to work, for example. No need to buy a new wardrobe every three months.

But retirees typically would like to travel – whether for their own interests or to see grandchildren. The older we get the more health problems we get. That is inevitable. Once insurance runs out, payment for hospital stays come out of one’s savings. Those who own their own homes will know that their roofs, air conditioning units and other big-ticket household items are getting older too…what happens if they need to be replaced?

Long story short, it’s never too early to start financial planning to ensure that you will have the money for emergencies regardless of what age you are, but in particular to ensure your comfortability in retirement.

That includes savings accounts to handle emergencies, as well as investment accounts to ensure a steady flow of “passive” during your retirement years. Remember, social security is nothing but a safety net. Although the system is not expected to go bankrupt by 2035, it is only one source of passive income and typically a small one at that.

Why create a financial plan?

From the time we get a job to the time we retire, we’ve got money coming in. Where does it all go? Many people making a good income find themselves at the end of their working life with no savings and no investment income, precisely because they did not have a plan. They may know where their money went – on a house larger than they needed, a new car every year, expensive vacations every year, kid’s college funds and so on – but they may not know just how much money disappears every year.

By creating a financial plan – a plan that you adhere to – you will know how much you can spend on a yearly basis while you’re working, on things like a house, a car, a vacation, while still saving for retirement or unexpected emergencies.

Knowing is everything.


How to create a financial plan?


achieve your goals


  1. Make sure you know your ultimate goal(s)

Obviously if you’re not in to traveling you won’t need a traveling budget. Perhaps you’ll just want to live in a specific location with the type of weather you like year-round. You’re happy with your own cooking and have no desire to eat out at restaurants all year round.

Knowing what you want out of your retirement years gives you a good idea of how much money you’ll need.

  1. Know what you can afford to save and when

Start keeping track now of where your money goes. How much do you pay for rent. If you’re buying a home, how much is your mortgage. How much do you pay for food. For your car.

After you’ve spent your money for the month, how much is left?

By keeping track of everything you spend your money on over the course of the month, and then multiplying that by a year, you can see how much money you’re spending on frivolities that could go into savings or investing.

For example, stopping in at a high-end coffee shop for a $3 cup of coffee every Monday through Friday, versus bringing a thermos of 5-cent coffee, will add up to $780 over the course of a year. That’s money that could be invested instead.

  1. “Pay yourself first”

That’s in quotes because every financial advisor you could possibly talk to will tell you that that is the only way that you will consistently save money.

The traditional advice is to put aside 20% of your monthly income into a savings account where it isn’t touched, before you spend the remainder on bills and any little luxuries you would like that month for yourself or to treat your family.

You can divide your savings into two parts – you can have multiple savings accounts at your financial institution, and separating the money allows you to know how much you have in your “emergency” fund and how much you have that will be used in future for a new car, or to put your kid(s) through college and so on.

But that 20% isn’t all. That’s just your savings account, take from your net income. You still need to pay yourself first with your investments, as well, and it’s best if that comes out of your gross income (before taxes).

  1. Investment income

Investments give you a better return on your money than a savings account – but you need to have savings for unexpected expenses.

Investments are for long term – they are to pay you a “passive” income after retirement. (Meaning you don’t have to go to work every day to earn that money – it just comes to you.)

If your employer offers a 401K, an option to purchase stock, or an investment-matching option, jump at it. If you’re just starting out, start small. If you’re doing just fine, money-wise, and receive a raise, put it all into your investments.

Investments can be “safe” and have steady yields, or “risky” and have higher yields – or you might lose money.

When it comes to investments, you need to do a lot of research to ensure you invest in the right things. Diversification is always a good thing.

  1. Buy wisely

Owning your own home is the American dream. But does it make financial sense for you? Every state has programs to help first-time buyers purchase their first house (with down-payment assistance, and offering a free class in home ownership.)

If the money you’re paying for rent is more than the money you’d pay on a mortgage, you’d save money buying a house. But if you rent, your landlord has to fix anything that goes wrong. If you buy, those fixes are your responsibility.

Many people purchase a “starter” house, and put equity into it. Then, when they need a bigger home due to a family, they sell the first house at a profit (having purchased it in a good neighborhood with steady property values) and buy the larger house they need.

Cars can be a major expense as well. Some people buy a new car very year, or lease one. Others buy a used car, pay if off quickly, and instead of making a car payment every month, can put half that money into savings and half into investing.

  1. Insure wisely

Home owners insurance is a legal must, as is car insurance. These are expenses that must be factored into any purchase.

  1. Plan for family


Apart from a house, a couple’s major expense is a child or children – with the resultant medical bills, dental bills, clothing bills and so on. If you’re going to have kids, saving for their future is important as well.

  1. Save and invest no matter your income

If you have a “starter” job – for example at a fast -food restaurant, you can still save a percentage of your money. As you move up in responsibility and wages, slowly increase your savings. You must maintain a good balance so you don’t get frustrated and stop saving entirely. But financial planning is not just for the middle class, it benefits everyone in every wage bracket

  1. Hire professionals when able to do so

Professional financial planners can help you prepare for the future and invest your money for you. But they only accept you if you can invest a certain amount.  $1,000 is the absolute lowest (for crowdfunding micro-investment portfolios), but $10,000 or more is standard. Choose a financial planner who you know is successful – get the advice of colleagues or superiors at work, for example, but do your own research as well.  It’s your money – you need to know what’s happening with it.

  1. Alter your plan when needed

Your financial institution has plenty of tools to help you keep track of your money. You can get free advice, if you’re a senior, from a variety of programs.

By always looking at your goal – financial freedom – and your current needs -a family, for example – you can successfully plan for your future and achieve your goals.