Many people hate the thought of financial planning. “Shouldn’t this be simple?” In trying to deal with unpleasant issues, we often look for ways to calm or nerves and simplify. Often we oversimplify, failing to consider all the relevant factors. Someone more familiar with this issue would ask more questions before proposing a strategy. What would you think if you told a neurosurgeon you had a headache and they immediately had you prepped for surgery? Here are 5 approaches financial plans we often fall victim to:
It won’t happen to me financial plan.
The all too familiar statement of victims interviewed by the action news reporter is “I never thought this could happen to me.” Often we just don’t want to think about results we don’t want and dismiss them. My company’s stock wouldn’t drop. I wouldn’t be let go for a younger worker. The horrific Boston bombing colors our thoughts of terror. Some victims of the Boston bombing are now faced with long term disabilities they never imagined. Have you planned for paying your bills if you had a long term disability?
That’s Not My Priority Now financial plan.
Have you put planning for your future retirement on the list of important but not urgent? Many people plan for vacations, buying a dream house and the kid’s college ahead of retirement planning. Planning doesn’t mean implementing. If you can’t save today, have you calculated how much more it will cost you tomorrow, 10, 20 or 30 years later? Saving a little now can help pushing your retirement date back or having to live on less during your retirement.
None of My Friends Have Done It Plan.
Birds of a feather often flock together. Your friends may tell you what you want to hear. They may want your companionship in whatever bucket they find themselves in. you want you to be in the same bucket- good or bad. Have you talked to them about Financial Independence Day vs. retirement? There companionship should sound much better if you all were financially independent sooner than later.
My company has a financial plan.
Are you participating in your company’s 401(k) or profit sharing plan? Is your savings based on their match or how much you have calculated you need? If you made $40,000 and are 25, you need to save 10% of your income to have $28,000 (in today’s dollars) at retirement. Are you investing in your company’s default option? The default may be a money market account which is not designed for long-term retirement investing. Investments based on your age or projected retirement year, don’t consider how much you have saved, are saving or worse, promise you any future income benefit.
Finally, will you stay at this company for life? Probably not. Your retirement plan must be tuned to your needs and be independent of the company you are working for today.
Financial planning like your parents.
My dad worked for a company for 25 years and retired with a pension. I won’t. Few companies today offer one. The jobs parents had and sometimes the companies they worked for no longer exist. When Social Security was envisioned (during my dad’s lifetime) few people lived past 65. Today, we expect people to leave at least 17 years longer. That is an average number, for which you may be the one that lives to 100 without need of long term care!
Develop your custom financial plan.
Financial planning is multi-faceted. Planning for retirement, kid’s college, planning for disability or a death prior to achieving financial independence. Just like finger prints, none of us are alike. You may care about not investing in tobacco while your friend could care less. Should you be invested in the same investments? I recommend finding someone that can help you elicit what you envision for your future. That person should then be able to translate that into a blueprint you can approve. You may want that person to work with investment managers, insurance professionals, tax professionals and estate planners to implement or improve on the design. You can then compare to the other planning methodologies to see if I was off track.
(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.