Financial Planning getting Started with a Plan

America’s demographic is comprised of a large number of older men and women. Many of them are often called Baby Boomers. Watching this generation who are living much longer statistically than their parents before them, it is apparent that Americans need to get serious about saving for retirement. With only a small Social Security check and what little savings they accumulated throughout their careers, a rising number of seniors are finding it difficult to be financially independent. This is why young professionals such should strive for financial independence. This way, individuals in their golden years do not need to worry about how the electric bill will get paid or how you will afford the essentials without having to ask your children for help.

Creating a budget

The first step to planning a financial future is to create a budget. A budget is sort of like a road map. Without one, navigating the future is more difficult. First, sit down and calculate all reoccurring monthly expenses. This would include things like utility bills, car payment, mortgage payment, house and car insurance, Internet and television bill, cell phone bills, average gas bill and food costs.

Basically, anything that is paid every month should be factored into a budget. If the monthly payments are unclear, use an online or paper bank statement as a place to get a better idea. After calculating monthly expenses, get a good estimate of miscellaneous purchases. Create an entertainment budget to reign in  impulse buys. This subsidiary budget includes trips to the movies, restaurant visits, book or game purchases etc.

After calculating the entertainment budget, add up all of the monthly, miscellaneous and entertainment expenses. Take this number and subtract it from household monthly take home pay. This is the net pay after taxes and deductions. Whatever number is left should give a good basis of what can be invested. Note, it is important to keep a certain amount in a checking or savings account so there is enough liquid cash to be able to handle things that come up in everyday life. For example, if a washing machine breaks, having enough liquid cash reserves to repair or replace it is helpful. After deciding what is feasible to invest on a monthly basis, examine retirment contributions to a 401(k) or similar retirement savings instruments.

Contributing to a 401(k)

If you are lucky enough to work for a firm that offers a 401K plan, it would be ridiculous not to contribute. First of all, all contributions are tax deferred. This means the money contributed will not be taxed until money is removed from the account. Your money will grow tax deferred over the years. Second, many companies will match a certain percent of contributions. Check with company human resources to determine any matching policy. Some companies even do dollar for dollar matching. Either way, it will be wise to contribute at least as much as an employer will match. In the future, the benefits of doing this will become clear. 

Contributing to a Roth IRA account

One of the strategies that can be very beneficial for anyone trying to become financially independent for retirement is to contribute the max amount for your age and income limit into a traditional or Roth IRA. If you are married and your modified AGI is less than $178,000, you are allowed to contribute $5,500 to a Roth IRA if you are younger than 50 and $6,500 if you are older than 50. You have already paid taxes on the money you put into the Roth IRA. Therefore, as long as one waits to take this money out until the age of 59.5, that person will not have to pay taxes on the money accumulated in these accounts. In fact, the only type of tax consequences one might incur are capital gains taxes. Having a traditional or Roth IRA is a good way to save for retirement and build up funds so to feel confident that one day financial independence will be a reality. 

Finding a financial advisor 

After completing a budget and evaluating 401(k) contributions, it is time to find a financial advisor. Although it is not necessary to have a financial advisor in order to be successful financially, most people do not have the knowledge or expertise to know how to invest their money in the most beneficial way for their unique situation. Having a reliable financial advisor will likely be a valuable tool to add to the financial toolbox. After locating a trust-worthy and experienced financial advisor, he or she will begin a  financial evaluation. Pertinent financial statements and tax statements may be needed so the advisor can get an accurate financial understanding. He or she will then be able to recommend how to proceed toward financial independence.

Saving for retirement and being financially independent is probably the single best gift anyone can give to themselves. By making a budget, contributing to an employer 401(k) and a traditional or Roth IRA, and finding a trustworthy and experienced financial advisor helps ensure financial independence in the golden years.