Introduction

Financial planning integrates your lifestyle with your long-term goals, equipping you and your family to best prepare for the future. Planning can feel tedious and overwhelming, but your future self will be grateful you did the work now. Like with most things in life, financial plans are not black and white, but flexible and designed for your unique circumstances.

What is a Financial Plan?

A financial plan is a comprehensive analysis of your financial situation, and the steps needed to take to reach your financial goals. Financial plans reveal where you need to adjust your lifestyle to get back on track. The time horizon of a financial plan depends on your goals and how far away you are from achieving them. Financial plans are flexible, providing cushion for medical emergencies, marriage, the birth of a child, and other life events.

Components of Financial Planning

• Budgeting is an important component of planning because it reveals your income sources and expenses, your assets and liabilities, and your financial strengths and weaknesses.
• Investing is another component, because it is important for building wealth and moving towards retirement if that is your goal.
• Retirement planning looks at your retirement and social security income and assesses the lifestyle you want to live during your retirement.
• Estate planning looks at inheritance tax estimates, any wills, and plans to give to philanthropic organizations.
• Tax planning deals with 401(k) and IRA contribution plans and returns on capital gains and income tax.
• Risk management has to do with LTC, disability, and life insurance. It also ensures beneficiaries and survivor benefit plans.

Determine Your Financial Goals

This step is vital to crafting your plan for what your needs are. Gather short-term and long-term goals but focus on looking at the whole picture of your financial future. These goals could include buying a home, retiring at 65, or paying off debt. Be honest with yourself about what you want out of life and how that translates financially.

Determine Financial Situation

It is important to know what you own verses what you owe. This will help in calculating your Net Worth, the value of everything you own. Knowing how much money you are bringing in and how much is going out is also important for budgeting and assessing where adjustments can be made.

Construct Plan

Next, piece together a plan outlining the actionable steps needed to stay on track. This typically involves saving money for retirement, building an emergency fund, and saving for traveling or desired purchases. Investing will also likely be part of your plan, because it is the optimal way to build wealth. You will need to discern your preferences and risk tolerance when building an investment portfolio. Paying off any debt is usually a piece of the plan, whether it’s car loans, student loans, or credit card debt. Building credit could also be a part of your plan if you are wanting to make big purchases, like a home or new car. Certified Financial Planners are educated and qualified to provide recommendations regarding your specific situation.

Implement Plan

Now, it is time to act. Once you have created your plan, you can now implement these adjustments to your everyday life. If your plan includes some extreme cutbacks to how much you are spending or increasing your savings, it is okay to start small and build up to your goal. Taking things incrementally will give you a better chance of sticking to the plan. Remember to stay flexible when things inevitably change.

Periodically Review & Revise

We are all faced with challenges and changes, making it important to reassess your plan and adjust accordingly. Adjustments like lengthening your timeline, saving more, or changing your goal altogether will help guide you back to the path.

Conclusion

A financial plan will help you manage your wealth wisely and keep you on a path towards the vision you have for your life. Seeking out a financial advisor is a great place to start when beginning this journey. Lets all take a leap towards a lifestyle that complements our finances.

Matt’s Corner

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The post The Canvas & Paint of Financial Planning appeared first on New Century Investments.

Building a foundation of financial literacy starting from a young age is key to setting your child up for financial success. The question is how do we do it? Especially if we did not come from a home that taught us to be financially literate.

What is financial literacy? Financial literacy is a skillset founded on knowledge that equips people to make informed decisions about their money. This is not about having the most money or having a confining budget. This is about having a healthy relationship with your finances, creating a fulfilling experience with using your money.

Research suggests that many financial habits are formed by the age of 9. Learning these skills is so formative for helping your child develop positive attitudes and habits towards money. Starting to instill these skills as early as you can is the most psychologically beneficial thing you can do for your kids.

Saving

The first practical tool is teaching your child to save for something they really want. Instilling some “skin in the game” or financial responsibility will teach the child that what you do with your money matters. Help your child plan for how much the item they want costs and how they’re going to achieve saving that amount. Teaching children delayed gratification builds character qualities like patience and learning to be content with what you have. It is important they know that adults also save for items they want, or bigger purchases like a home or a family vacation.

Practicing Managing Money

Hands on experience is always a great way to learn and become confident in that skill. It can be a fun experience for you and your child to go to a coffee shop and have them practice paying for a coffee and treat. You can also set savings goals together, set up a savings account, and teach them to allocate certain portions of their earnings to savings and spending. Practical ways to give agency to your kids is through a weekly allowance as they complete chores or for Christmas or birthday gifts.. It is healthy for a child to learn that earning and saving is linked to work. For children, they can help with the laundry, the dishes, the garden, or even helping neighbors with household tasks.

Be The Example

This last tool might be the most important. Children mirror what they see, and that means they will learn how to handle money and think about money from the perspective of their caretakers. Work on yourself to develop healthy money management and invite your children into open conversations about why certain decisions are made. Involve your children in financial activities, and the process of deciding what to purchase. Teach them about finding discounts, buying secondhand, and comparing prices. For older children, you can begin to teach them about investment accounts and the power of compound interest.

Equipping children with financial literacy is essential for their financial well-being throughout their lives. Nurturing your children financially with tools and dialogue, will help them develop strong money management skills that they can continue to pass on.

Matt’s Corner

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Introduction

Entropy – a scientific term used to describe the ever-growing disorder in the universe. This manifests not only in space, but in the structures and systems of the world. People’s homes are full of stuff, their minds are filled with instant access to news and media, and their finances are filled with never-ending credit card payments and messiness. Minimalism is a growing idea in our culture, because the world is tired of unorganized and complex living. As humans, we desire structure and order to our days, calling us to delve into our financial life and bring some calm to the chaos.

1. Consolidate Bank Accounts and Retirement Accounts

First, having multiple different accounts to manage can be overwhelming and only creates extra stress when checking accounts. It is recommended to have one account for spending purposes and one savings account. It is also recommended to rollover any previous job 401ks to a self-employed retirement account. When consolidating your retirement accounts, make sure to double check for any tax implications.

2. Get Rid of Paperwork That Isn’t Necessary

Take some time to sort through your filing cabinet and purge paperwork that is not necessary. It is especially therapeutic to categorize and label each section of your files to relieve additional stress. It can be helpful to only keep what you need a hard copy of in a file. For extra measures you can also create a folder on your computer and store documents electronically.

3. Choose One Credit Card

Credit cards can also build up quickly, because that is the goal of the businesses marketing them to you. It can simplify your wallet and budgeting if you focus on using just one credit card. Choose the card that will serve you the most and forget about the rest.

4. Review Your Subscriptions

It is important to review your subscriptions now and again and consider the ones you are not using. This simplifies your life and creates one less bill you must worry about. If you are a budgeter, it will make tracking your expenses so much easier if you can simplify how many you have.

5.  Automate

Technology is always working to create a more efficient way to do things.  For monthly bills, like insurance, rent, and utilities, check into setting up auto-pay that will automatically charge your account on the day that it is due. This simplifies your finances and clears space in your mind, because you know your bills are taken care of. You can also automate a certain amount of money to transfer into your savings account, completely customizable to your preferences. There is even budgeting software that you can invest in to link your bank accounts and budget for you, just to make your life a little simpler.

Conclusion

Simplification brings quiet to a loud mind and peace to your financial life. I hope these recommendations can add value to how you manage your assets and create more intentionality in calming the chaos around us.

Matt’s Corner

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Budgeting is a tool created to improve how you manage your finances, and to be a guide leading you closer to reaching your financial goals. Budgeting consists of having a system to measure your income and expenses, setting goals, considering what are your needs and wants, and knowing the difference between fixed and variable expenses. The process of budgeting is not black and white, but completely individualized. Depending on your unique circumstance, each budgeting strategy could be tweaked and customized to what serves you best. Many philosophies and strategies have been developed over time that all strive to bring peace and knowledge to the state of your finances.

To start out, the 50/20/30 budget is a very common budgeting strategy that consists of allocating a specific amount of your income to your needs, savings, and wants. The strategy goes with specific numbers, but according to your situation, these numbers can always be adjusted. It is recommended to spend 50% of your income toward your needs, including items such as housing, food, and insurance. Then, 20% of your income should go towards a savings account, whether that is for a future home, emergency fund, retirement, or a college savings account. 30% of your income is recommended to go towards your wants, such as dining out, art or cooking classes, and traveling. This budget is quite simple, but still requires that you know on average how much money you are bringing in every month, and how much is going out, to adjust in terms of the budget.

The next method is called the “Pay Yourself First” strategy. This budgeting strategy might be helpful if you feel very overwhelmed by your financial situation and do not want to get too wrapped up in nitty gritty details. This method follows the principle that the first “bill” you pay every month should go towards your savings account. After you have paid yourself, then you should pay your bills, and whatever is left over is free to be spent as you please. It can be so easy to feel guilty for every purchase you make that is not going towards a need or savings, especially in the early stages of building your portfolio. It is important to save and pay your bills, but it is also important to live your life and do things or have things that you love. Budgeting can be a tool to help you enjoy those things even more when you know you are taking care of your future self.

The Zero-Based Budget is the most involved and detail oriented of all the budgeting strategies. This strategy consists of meticulously tracking every dollar coming in and assigning it to a specific expense, leaving you with a balance of $0. This plan can be helpful in developing a sense of intention in how you spend your money. Every dollar means something and has a specific purpose in your life. This method also requires that you plan out every expense for that upcoming month, creating strong boundaries around impulse purchases.

The envelope budget is where you place specific amounts of cash into envelopes that each represent a category. Once the envelope is empty, you can no longer spend any more in that category for the month. This method is originally done with cash but can also be done electronically in different budgeting apps or a spreadsheet that you created. It is important to know how much money that you spend in each category to ensure that the envelope is sufficient for the month. There is research that reveals spending with physical cash is often more challenging than swiping a card or paying online. This budgeting strategy creates that effect, leading to thoughtful purchases.

Modern budgeting strategies are typically automated through budgeting apps, auto-pay, and financial planning software that are linked to bank accounts. These services simplify budgeting and could be super helpful if you are looking to reduce the amount of work you must do to keep an accurate report of your finances.

You might be a finance nerd and create a complicated spreadsheet meticulously tracking all your accounts. Maybe you are a new parent just trying to make it through the day, and you use an automated budgeting app to keep track of your finances. Maybe you’re a college student just learning how to create spreadsheets in Excel. The art of budgeting is crafting it to your specific needs, serving anyone in their season of life, and helping all reach their financial goals.

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Create a Budget

The first step towards managing your finances is creating a budget. A budget helps you understand your income, expenses, and savings. It allows you to track where your money is going and identify areas where you can cut costs. When creating a budget, make sure to include all your sources of income and list out all your expenses, including fixed and variable costs. Once you have a budget in place, stick to it and make adjustments as needed.

Set Financial Goals

Setting realistic financial goals is crucial for effectively managing your finances. It provides a clear direction and motivates you to save and invest wisely. Your financial goals should be specific, measurable, achievable, relevant, and time-bound (SMART). Whether it’s saving for a down payment on a house, paying off debt, or building an emergency fund, setting goals can help you stay focused and make better financial decisions.

Track Your Expenses

It’s essential to keep track of your expenses regularly. Many people don’t realize how small purchases like eating out or buying coffee every day can add up over time. By tracking your expenses, you can identify where you’re overspending and make necessary adjustments to stay within your budget. There are various apps and tools available that can help you track your expenses effortlessly.

Prioritize Saving

Saving money is a crucial aspect of managing finances, yet many people struggle to save regularly. One of the best practices for saving is to prioritize it, just like any other expense. You can automate your savings by setting up automatic transfers from your checking account to a savings account. This ensures that you save a specific amount each month without fail.

Invest Wisely

Investing is an excellent way to grow your money and achieve long-term financial goals. However, it’s essential to invest wisely and do thorough research before making any investment decisions. Consider diversifying your investments and seeking professional advice to ensure your investments align with your financial goals and risk tolerance.

Stay on Top of Your Debt

Debt can be a significant obstacle in managing finances. It’s crucial to pay off high-interest debts as soon as possible and avoid taking on more debt than you can handle. Consolidating your debt or negotiating for lower interest rates can also help in managing your debt effectively.

Review and Adjust Regularly

It’s essential to review your financial plan regularly and make necessary adjustments. Life circumstances can change, and so can your financial goals. Make sure to adjust your budget, savings, and investments as needed to stay on track towards achieving your goals.

Managing finances is a continuous process that requires discipline, patience, and consistent efforts. By following these best practices, you can effectively manage your finances and work towards a financially secure future. Remember to start small, stay focused, and be open to making necessary adjustments along the way. So, keeping these practices in mind will help you achieve financial stability and success.

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. 

Matt’s Corner

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1) Where Do You Want to Go and When?
Have you considered where you want to go, and how many months away this is? Do you have money saved for this? Or will you need to start now?

2) Plan far enough in Advance
The further in advance you plan your vacation, the lower the cost for things like airfare and lodging will be.

3) Has Your Financial Situation Changed from 1 year ago?
Many individuals were furloughed in 2020, due to COVID-19. Therefore, if your financial situation has drastically changed, then it very well could be worth considering the idea of a stay-cation this year and saving for a longer-term vacation goal.

4) Do you have a Spreadsheet or Budgeting App to plan with?
This is key. Having the right tools in place will make your savings goal very clear. For example, we provide our clients (who want access) to the RightCapital Budgeting App. This smart-tech budgeting app is for Advisors, and it can only be given to individual clients through a Registered Financial Advisor, like New Century. You can link your account to RightCapital and it will keep track of your monthly expenses and even automatically categorize them for you. Contact us if you want this application, it’s no cost to our clients.

5) Look for the best deals available. Consider using a Credit Card for Travel Points (but pay it off!)
You don’t want to go into debt over your vacation, but intentionally using a Credit Card to pay your travel expenses is intelligent, if you pay it off the same month. You will earn rewards points, possibly travel points, and other incentives that your bank offers.

Here’s an additional link I’ve included to an article by The Planning Center on tips for budgeting a summer vacation. These are some ideas to help you begin planning for your next vacation.

Contact me with any questions you have. Let’s aside 15-20 minutes and connect to discuss your financial goals for 2021 along with other updates or ideas that you may want to take advantage of.

Set up your appointment today!

Matt Ward, CRPC^®
817-238-6300
Matt.Ward@newcenturyinvestments.com

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