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Financial Planning Changes
over the Years
by
Ozeme J. Bonnette
The Early Years
Many people don't start thinking about retirement until
they get close to it. Financial planning should actually start on the first day
on the job. Here are some tips to help you get on the right track.
The early years - 20s
When you start your first job, you know that you have plenty of time before
you retire. But don't let time get in the way and turn you into a
procrastinator. It is never too early to start.
While expenses are still minimal, get started on a budget. Budget doesn't
have to be a negative word. A budget is simply designed to help you know where
your money is going. If you always have a plan for your money, you should never
be without. Set a plan for both short and long-term goals, and stick to it.
It is also time to get an emergency fund established. You should set aside
three to six months' living expenses for the "just in case" situations. Remember
what emergencies are, and don't dip into it for lack of patience and control.
Now that everyone is willing to lend you money, don't get caught in the
credit card trap. Open two or three general purpose cards. Don't get department
store cards. Use only what you can afford to pay off each month, and always pay
your balance in full.
You should also maximize your retirement savings. While you're young, get in
the habit of contributing to your employer's retirement plan. Put in at least
the amount that your employer is willing to match. If you can afford more, do
it.
You should also contribute to a Roth IRA. Research the types of investments
available and use a combination of mutual funds and exchange-traded funds
(ETFs). Do not purchase individual stocks and bonds. The ability to diversify at
this stage is too difficult, and you will increase your portfolio risk.
The family years - 30s
By the time most of us reach our 30s, we have started our families. These
life changes bring on new responsibilities and new priorities. Don't stop any of
the financial strategies that you were doing in your 20s, but reevaluate
everything and make the necessary adjustments.
Purchase life insurance to protect your spouse and children in the event of
your unexpected absence. We don't like to think about death in our 30s, but it
is much better to ensure that your family is financially secure than to live in
denial. Consider your family's lifestyle and financial needs to make sure that
you purchase the proper amount of coverage.
You should also consider your family's estate planning needs. Set up a
revocable living trust so that your assets can be passed on to your loved ones
without going through probate. As things change later in life, you can adjust
the revocable trust as needed.
Next time, we will look at the next two groups - 40s and 50s. The strategies
may change, but the end result stays the same. The sooner you start, the better.
But remember that it's never too late.
Ozeme J. Bonnette is a
financial coach, speaker, and author of Get What Belongs to You: A Christian
Guide to Managing Your Finances. Her focus is on increasing financial literacy
among adults and youth around the U.S. She earned 3 Bachelor's degrees at Fresno
State, and her MBA at UCLA's Anderson School. Her blog is
http://www.povertynorriches.com. Reach her at
ozeme@thechristianmoneycoach.com. |
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