Sometimes finances can seem immediate. You need money for rent today, your credit card bill is due tomorrow, your friends invited you to try a new restaurant tonight. So many of our financial decisions happen in the present or near future, but rarely are we actively conscious of our finances in the distant future. I don’t see too many people on a Tuesday night calculating the net worth of their 401(k) accounts.
In this post, I will explore a few central questions:
- How can you include long-term financial planning into your overall financial strategy?
- What are the benefits of long-term planning?
- In what ways will these plans help you reach your goals?
Help Future You
In many respects, our society is centered on the present, and this is not necessarily a bad thing. By living in the now we are able to experience life as it comes. There is something to be said however for allowing past and future perspectives to influence decision-making and problem-solving. By learning from the mistakes of the past, you are able to create a brighter future.
Let’s look at how this principle can be applied to long-term financial planning.
- Break the paycheck to paycheck cycle.
Living paycheck to paycheck is a financial woe in which many people find themselves. This literally means that the state of your livelihood depends on your paycheck each month. This is an unhealthy cycle which can lead to increased stress, higher burnout rates, and less job satisfaction. Breaking free from this lifestyle is not easy, but there are ways to have a clean slate.
- Downsize. You have to live within your means, and downsizing is a great way to accomplish that. This may include moving to a new apartment to decrease your rent or refinancing a mortgage.
- Eliminate extra spending. What are some extra expenses you have each month? Subscriptions to magazines, entertainment, food, and other retail products can consume a large portion of your budget. Assess where your money is going each month and how you can increase saving by cutting back on your subscriptions and memberships.
- Understand your debt. Debt is a huge reason for the paycheck to paycheck debacle. Take a look at where you are with your debt. Then view different resources you have to pay it off sooner rather than later to free up your finances.
- Put long-term goals on your radar.
One of the main reasons people don’t think about long-term goals is because they don’t have any. There are many large expenses that will surface in the future:
- Education for yourself and/or children
- Emergency savings
- Buying a house
These large expenses require a savings strategy to help set you up for success. What goals are important to you and your family? Take a moment to write them down. I challenge you to prioritize 2-3 long-term financial goals this year and logical steps on how you will work to accomplish them. Make monthly check-ins for yourself to gauge your progress and how you can improve. A financial advisor would also be able to help you both set and prioritize your financial goals.
- Prioritize retirement savings.
One of the most pertinent long-term financial goals should be focused on your retirement. About 50% of Americans do not have any savings for retirement at all and 40% feel that they will not have enough money to last them through retirement. This makes retirement savings an imperative long-term goal.
Many avenues and channels exist for growing your retirement income:
- 401(k), 403(b), and other workplace accounts
- Traditional IRA
- Roth IRA
- SEP/Simple IRA
- Savings accounts
Saving for retirement becomes even more important when we think about the lower mortality rate in America. People are living longer, and that can be a gift but it also means that people need to be financially equipped to handle a longer lifespan. The average life expectancy for people in the US is 80 years and women tend to live longer than their male counterparts. What methods are you using for your retirement savings? Are there ways you could improve this year?
- Think about your legacy.
We often do not think about the life we will leave behind. It is a reality that will affect our family and loved ones. So how can you plan for your legacy? This is where estate planning comes in. Estate planning is the practice of managing and assigning directives to a person’s financial profile should they not be in a position to make the decisions themselves. Estate planning is a crucial component of your long-term financial journey as it outlines the state of your assets when you are unable to do so. There are many aspects to estate planning that you should think about:
- Establish beneficiaries
- Elect guardians and trustees for children
- Assign a medical directive and power of attorney
- Outline financial wishes
Estate planning is a practice that looks to organize your financial profile. This process alleviates stress from your family and loved ones while allowing you to rest easy knowing that your assets will be in good hands.
Long-term financial goals are not always simple to set and maintain, especially because they can get really complicated. The financial goals you set for yourself are just that: goals. They are not mandates and do not have to be achieved in a specified amount of time. By thinking of these goals as an ongoing process, you will be able to relieve yourself of some of the stress that accompanies such topics.
If you find these goals are too stressful to make on your own, don’t hesitate to talk with a financial advisor. You do not have to make financial goals on your own. You always have someone on your side who wants to see your financial future shine.