Is Financial Planning Your Personal Tar Pit?

Financial planning may be your personal tar pit according to and article from ColumbiaTribune.com. This term was coined by Andrew Zumwalt, an assistant professor at the University of Missouri. He said that he often sees the ugly emotional baggage that many people carry into their financial lives that can prevent them from being smart with their money.

“Maybe it goes back to how they were raised or what they were taught in school or on Sunday,” he says. “They have feelings and emotions that dictate how they interact with debt or with savings or personal finance in general.”

People just get hung up

Zumwalt went on to point out that one of the problems is when people get wrapped up in their long-term goals before solving their short-term issues. Or they get hung up on their fear of living in debt or with impressing their friends with money they may not even have.

So, what’s the best way to look at financial planning? Whether we like it or not, it includes a huge part of almost everyone’s life. This includes everything from day-to-day financial decisions to mapping out future steps such as retirement. The problem Zumwalt points out is that financial planning is not something you just sort of go and do. It’s something we’re always doing in one form or another so the question becomes how far do we want to take it and how serious are we.

While there ‘s clearly no one-size-fits-all solution for financial planning there are some general rules you can keep in mind and there are resources available you can turn to when you need help.

Take baby steps in your financial planning

When people begin thinking about planning their personal finances one of their first questions is very simple – what should I do first?

Dave Ramsey discussed the baby steps that you can follow in taking control of your finances.

Most experts say that the initial steps in financial planning should depend on your own goals. There are a number of different factors that can shape one’s personal finances and even shift your priorities. This includes things such as high-interest debt, age, and occupation as they all play competing roles in the financial planning process making it hard to give general advice. What most financial experts suggest is to begin with building an emergency fund. They usually advise that you should have between six and 12 months of living expenses in the bank. If you have a stable job that produces a steady income then six months should be enough. However, if you don’t have great job security or work on commission you should try to save something closer to 12 months of expenses.

Where things can get sticky is making this a priority in your financial planning as it assumes a lot. For example, if you have high-interest credit card debt or, even worse, payday loan debts, you should start paying them down first. Once you have eliminated that debt you can then start putting more money into an emergency savings fund so that you will have a bigger 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 to budgeting is to set up automatic deposits from your checking account to your savings and retirement accounts. Psychologically it’s just harder to miss money you never really see. If you can’t set this up through your bank then sign up for an account at Mint.com, which will also monitor your bank account spending. This is a free program that will 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 say is actually better than Mint. While Mint can give you a snapshot of your finances as a whole this program will allow you to link all of your accounts so that you can view your “net worth.” You can look at your credit cards, bills, income, IRA, 401(k), and loans through just the one account. This would allow you to assess your financial health and begin planning for your 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 level of your finances.

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 dramatically as the survey found that about 60% of those between the ages of 18 and 29 are not saving for retirement apart from contributing to Social Security. According to one expert baby boomers spend more than their parents and where this is going to be seen is in their retirements when they learn they haven’t saved enough. While no one can say for sure what Social Security will look like 30 or 40 years from now most experts say its future is bleak.

However, before financial planning for retirement what many people need to do first is take a hard look at their 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 the emergency fund before even thinking about retirement savings.

The real estate market

If your goal is to buy a house then this is similar to budget planning in that it will depend greatly on your financial circumstances. Financial factors also come into play in addition to budgeting. One real estate agent has said that her clients are seeking energy efficient houses more and more as they hope to save on utilities while paying down their mortgage. But what matters more than this is pricing out the improvements that will need to be made to the house and its property taxes as these costs will far outweigh any savings that can be made through energy efficiency.