The eminent social philosopher (and Hall-of-Fame baseball player) Yogi Berra is credited with the saying, “If you don’t know where you’re going, you’ll probably end up somewhere else.” Most of us would probably agree that a primary requirement for any important or worthwhile undertaking is forming a plan, usually after figuring out what resources are needed for successful completion.
In fact, we typically recognize the value of planning, even when it doesn’t involve a life-or-death matter. For example, how often have you had to interrupt a weekend DIY project with a “quick” run to the local home improvement or craft store because you lacked a key part? In other words, even if it’s in retrospect, thinking ahead about what you’re trying to accomplish—and making sure you’ve got what you need to accomplish it—is an important first step toward success.
Another thing on which there is almost unanimous agreement is that money, while maybe not the most important thing in life, is a necessary ingredient for the type of life that most of us prefer. It can’t buy happiness, but it can sure give you options. And yet, the vast majority of Americans—nearly two-thirds, according to a recent survey by Charles Schwab—don’t have a documented financial plan. Why do you suppose that is? If financial resources are a “key part” of good life outcomes, why do so few of us take the time to map out a financial strategy?
One reason sounds something like this: “I don’t have that much money; why do I need a financial plan?” You sometimes hear this from young people who are just starting out. For them, financial planning is something to be undertaken “someday,” when they’ve accumulated assets by some apparently vague means. Of course, that’s kind of backwards: people in their 20s and 30s are at the ideal age to begin planning their financial futures, since time—the most important element for wealth building (and the one you can’t buy)—is on their side. Another variation on this theme might go like this: “What’s the point of planning when I’m not even sure what my future will look like?” But here again, having a plan—including conversations with a financial advisor—can really be useful at this early stage. You can ask questions like: “Which job should I take?” “When should I plan to purchase a home?” “When is the best time to start a family?” An experienced planner should be interested in all these questions and have the knowledge to help you make wise choices that can move you from an unpredictable future to a well-thought-out road map for life.
For others, a general lack of understanding and maybe a dose of fear are significant barriers. Because they view the financial markets as complicated and scary, they don’t want to think about it, especially in connection with their own money.
There can be other reasons, but these two—procrastination and fear of the unknown—probably account for most Americans’ failure to plan for their financial futures.
As this is written, we’re at the start of another brand-new year, a natural and customary time for reflection on the past and looking toward what lies ahead. In other words, now is the perfect time to begin formulating a strategy for a better financial future or—if you are among the wise minority—for fine-tuning and adjusting the plan you already have. So, let’s take a look at some of the most important first steps in financial planning that can help you move past the barriers and begin your journey toward a more satisfying and low-stress future…
Write down your goals.
We know, we know… every coach, counselor, and motivational speaker you’ve ever heard harps on the importance of goal-setting. But as Yogi Berra said, there’s not much point in starting out for any destination if you don’t know what it is. And your goals don’t have to super complicated—at least, not at first. Maybe something as simple as “retire at 55,” or “help the kids with the down payment on their first house.” Whatever is most important to you should form the basis for your goals. And it really does help if you write it down. This makes the goal more concrete, less likely to evaporate into a vague wish that never generates any action.
Set a budget.
Ah, there it is: the dreaded “b” word. But remember, a budget isn’t something that’s supposed to make you feel guilty. Instead, you should think of it more like a compass: something you check to make sure you’re still headed in the right direction. Your budget is a tool that you design to meet your unique needs and goals, essential for building your financial future.
Build an emergency fund.
While we’re on the topic of budgeting, it’s important to remember that any plan for the future must allow for the unexpected. After all, “things happen”: a car breaks down; a major appliance fails; your company downsizes; you need a root canal … and the list goes on. If your budget includes regular deposits to a readily available emergency fund, your financial strategy will be less vulnerable to those inevitable, yet unforeseeable circumstances that can otherwise deplete the resources you have available for saving and investing or—worse—cause you to reach for a credit card. Many experts recommend having three to six months’ worth of income in your emergency fund.
Next steps. If you’ve already taken care of these three basics, congratulations: you’re in the top twenty percent for “financial preparedness.” But if you want to take the next steps toward building real wealth, you may need some professional guidance. Those planning to build significant wealth consistently utilize strategies that include the following concepts:
- Eliminating high-interest debt (i.e., “smart borrowing”);
- Investing to outpace inflation over the long term;
- Considering the tax implications of income, purchases, sales, and investments;
- Using tax-advantaged retirement accounts to accelerate long-term asset accumulation;
- Incorporating estate planning to optimize your heirs’ financial futures.
At Curio, we help people develop customized financial plans crafted around their unique goals and priorities. No matter whether you’re just getting started on the basic steps outlined above or you are a sophisticated investor looking for a more personalized approach, we want to know more about where you’re trying to go. We’ll help design the map that gets you there.
