Financial planning may be your personal tar pit according to an article from ColumbiaTribune.com. This term was coined by Andrew Zumwalt, an assistant professor at the University of Missouri. He often sees the ugly emotional baggage that many people carry into their financial lives—which can prevent them from acting smart with their money.
“Maybe it goes back to how they were raised or what they were taught in school,” he says. “They have feelings and emotions that dictate how they interact with debt or with savings or personal finance in general.”
People get hung up
Zumwalt went on to point out that one stumbling block is when people get hung up on their long-term goals before solving their short-term issues. Or they get engrossed in their fear of living in debt or impressing their friends with money they may not have.
So, what’s the best way to look at financial planning? Whether we like it or not, it plays a huge role in pretty much everyone’s life. This includes everything from day-to-day purchases to mapping out future goals like retirement.
The problem, Zumwalt points out, is that financial planning is not something you just sort of go and do, it’s an action we’re always taking in one form or another. So, the question becomes, “How far do you want to take it and how serious are you?”
While there is clearly no one-size-fits-all solution, there are some general rules you can keep in mind and resources you can turn to when you need help.
Take baby steps in your financial planning
If you’re like most people, one of your first questions will probably be where do you begin?
Dave Ramsey discussed the baby steps you can follow in overcoming financial obstacles by taking control of your money.
Most experts say initial steps should align with your goals. There are a number of different factors that can shape your finances and even shift your priorities. High-interest debt, age, and occupation all play competing roles in the process, which can make it difficult to dole out general advice.
What most financial experts suggest is to begin by building an emergency fund. Many recommend socking between six and 12 months of living expenses in the bank. If you have a stable job that produces a steady income, six months should be enough. However, if your work is intermittent or you get paid on commission, you should try saving closer to 12 months.
Where things can get sticky is that making saving money a priority assumes a lot. For example, if you have high-interest credit card debt or, even worse, payday loans, you should start paying them down first. Once you have eliminated those balances, you can then start putting more money into an emergency savings fund to build a large financial cushion.
The trials and tribulations of budgeting
The task of creating and sticking to a budget can also be a messy one. In another Columbia Tribune article, David Keller a community bank president at the Bank of Missouri says the answer is to handle your money as little as possible. “If you never have it in your checkbook, you never have the chance to spend it.”
One good solution is to set up automatic deposits from your checking account to your savings and retirement accounts. Psychologically it’s harder to miss money you never really see. If you can’t set this up through your bank, sign up for an account at Mint.com. An extra bonus is that this free app will also monitor your bank account spending and help you track your net worth by combining data from your savings and retirement funds.
In addition, there is a free program called Personal Capital, which some people claim is better. While Mint can provide a holistic snapshot of your finances, this program enables you to link all your accounts so that you can view your “net worth” at a glance.
By keeping track of your credit cards, bills, income, IRA, 401(k), and loans all in one place, you can assess your financial health and begin planning for the future. One person described Personal Capital as “mission control for your personal finances” as the app’s dashboard will give you everything you need to gauge every single detail of your funds.
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When life throws you a curve ball
Imagine someone who has always dreamt of becoming a chiropractor. But after a serious car accident sidelined their plans, they became a medical researcher instead. This change will affect more than their career. What if the discrepancy between salaries is a whopping $100,000 and their financial plan was based on the higher salary?
Life happens. That’s why it is important to be flexible and adjust your financial goals as needed. On the plus side, if you received an unexpected windfall, you could pay off your debt faster and buy that car you’ve had your eye on forever.
Expect both good and bad surprises to be thrown your way.
The dreaded “R” word
Here’s an amazing but sad fact –a Retirement-USA.org survey last year found that 43% of Americans are not saving for retirement.
If you look at younger workers, that figure grows exponentially as the survey found that about 60% of those between the ages of 18 and 29 are not saving for retirement at all—apart from contributing to Social Security.
According to one expert, millennials spend more than their parents. It will be too late if they wait until retirement to learn that they haven’t saved enough for their golden years. While no one can say for sure what Social Security will look like 30 or 40 years down the road, most experts predict its future is bleak.
Before planning for retirement, you should first take a hard look at your credit card balances. Is spending an issue? Or was it just a one-time medical expense? It’s important to fix any overspending behaviors and then set up an emergency fund before focusing on longer-term goals.
Don’t let debt get in the way of your plans
Debt can creep up on you slowly if you don’t manage your finances properly from the get-go. And if you are busy playing catch-up, your future goals may go by the wayside.
If you are already struggling, debt settlement could help you get your finances back on track in as little as 24-48 months. At National Debt Relief, we negotiate on your behalf with creditors to settle the balance with a lump sum payment that is often less than you owe. The theory is that many creditors prefer to receive partial payment rather than nothing at all.
Once all your enrolled balances have been addressed, you should have more freedom to fund your emergency fund, save for retirement and other milestones, and shape the life you want. If you hit any roadblocks along the way – and the odds are that you will – seek the knowledge and expertise needed to quickly get back on course.