This is a guest blog post from Matthew Benson, Certified Financial Planner™ at Blakely Walters Wealth Management
With a new year comes many new goals. I know for me my goals tend to center around a few main things: travel, faith, family, financial, and work to name a few. In my experience focusing on solely one of them creates for a long year. There should be balance. One driver of several of your goals is centered around your resources (time and financial). Here are 5 simple focuses that can help you to create realistic financial goals for 2017:
1. Cash (aka: Why you are living from check to check)
When I think of cash there are two main components: budget and savings. I will be the first to say it, budgeting is NOT fun (don't tell my colleagues). However, if we are going to be slave to our habits - and I believe that we will be – I would like to be a slave to good habits and having a budget is an enabler that tells your money where to go rather than looking back at the end of the month and wondering what happened. There is not a right way or a wrong way to budget. If you have a system in place that works for you then keep at it! If not, then I would challenge you to incorporate that into a part of your financial goals for 2017. There are multiple options for budgeting including: online programs, prefilled Excel sheets, pen and paper, envelope system, etc. The one that is right is the one that you use.
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The other part of cash is savings. Both saving for expenses and saving for the unknowns of life. If you know you are going to have a large expense in the next 12-36 months I would challenge you to save cash for it if possible. To take it a step further I would even consider using a bank that is different than the bank that you use primarily (There are several LFA member community banks and credit unions). You know it as well as I do that it's very easy to transfer funds from your savings right into your checking and voila the funds can be gone. Saving in a bank different than your primary bank adds one layer of protection from yourself being able to easily access those funds. For an emergency reserve a good rule of thumb is 3-6 months of expenses depending on employment and your stage in life.If you are short of that I would challenge you to make a shorter attainable goal that is maybe one month of expenses or two months of expenses. Don't feel bad celebrating as you accomplish milestones, just build it into your new budget.
Oh debt, you tricky part of behavioral finance. Most of you reading this likely have some sort of debt whether it is a credit card, mortgage, student loan, car loan, or a business loan. Not all debt is bad debt necessarily. However, if there is debt that is costing you more than what would be reasonable for a return on investment (again depends on your stage in life and risk tolerance) than that would be debt we would want to pay off sooner than later. Depending on the interest rate this normally will identify itself as credit cards, signature loans, car loans, and student loans.
The other factor to consider is how much the debt costs you on a monthly basis as a factor on your budget. For example if you had a car loan at 0%, but the payment was 40% of your monthly budget I would challenge you to pay that off quickly or downsize your vehicle.
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Cover your ears, I am going to talk about something everyone loves to talk about, INSURANCE. Now this does not have to be a bad thing, but you should understand what you are paying for and insure what you can't afford to self-insure. Common types of insurance are home/auto, life, disability, long term care, and liability to name a few.
Let me give you an example of something you might be able to self-insure versus something that you may not want to. My wife recently had a crack on her windshield so we had it replaced and it cost about $250 for her car (we used SafePro Auto Glass, they are a Local First Member and I had a great experience with them). I can pay for the glass protection insurance which is about $80/year, but I feel comfortable taking on the risk of having to pay cash for a new windshield every now and again so I don't buy the glass coverage.
On the other hand I have higher liability limits on my auto coverage to protect me if I were to get sued. You can think through this same scenario with other types of insurance in what you can self-insure vs. pay an insurance company to insure. I would challenge you to review your existing insurance coverage to better understand what you're paying for to determine if your insurance dollars could be better allocated to better protect you. There are also many great Local First Arizona member insurance companies that can help you determine the right coverage for you.
4. Estate Plan
It is very important to have an estate plan in place. If you are a business owner, parent, or married it could leave your dependents with an unclear picture if something were to happen to you. There are great attorneys even in Local First that can help to draft an estate plan. Depending on your employer you may already have a prepaid legal benefit or a benefit that allows you to get a basic estate plan drafted.
Photo Credit: Kat Grigg
Finally the part you've all been waiting for: investments. There are many things to consider in regards to investments: time horizon, risk tolerance, taxation, and holdings among others. Your situation is different than anyone else and should be treated accordingly. It would be wise to review your investment plan to make sure it aligns with your goals. If you do not feel comfortable tackling this on your own feel free to reach out to a financial planner (we are happy to help) after all we have devoted our livelihood to helping people understand what they are doing.
In conclusion I wish you luck in your 2017 goals. Make sure that they are balanced. We have only talked about finance in this post, but make sure you set goals for the other rocks of your life.
Matthew Benson is a Certified Financial Planner™ at Blakely Walters Wealth Management, a Local First AZ member. He can be reached at 480-776-5866 or [email protected]. The content of this article is not specific investment advice nor does it consider an individual’s specific financial situation. Securities and investment advisory services are offered through NEXT Financial Group, Inc., member FINRA/SIPC. Blakely Walters Wealth Management is not affiliated with NEXT Financial Group, Inc.