Life Planning Financial Literacy Financial Planning

Setting and Achieving Financial Priorities

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In life, we are constantly forced to make decisions regarding our priorities. These fall into categories such as:

  • career and business
  • family and home
  • health and wellness
  • social and cultural
  • finance and money
  • spirituality
  • intellectual growth

All of these categories are important, but the financial area can provide the means to meet the needs and wants we have in other areas. Instead of money ruling us, we can rule and manage it. We can use our money for good. 

Very little attention has been paid to financial literacy in our educational system. As a result, most people struggle to understand how to succeed financially and build wealth. 

What is Financial Success?

I have come to define financial success as the ability to live the remainder of your life without outside help; only working when you choose. This is true freedom, because you have control of your time.  

How can you get there? 

  1. Educate yourself about how the economy and investing work
  2. Clarify your financial goals
    • Do you want to save for a special trip or event?
    • Do you want to retire at a certain age?
    • Do you want to pay for your children’s education?
    • Do you want to buy a house, or a nicer house than you have now?
    • Do you want to leave money to your children and grandchildren, or a favorite charity?
  3. Spend less than you earn
  4. Invest the remainder at a reasonably-good interest rate
  5. Keep your money invested over the long-term (regardless of whether the market goes up or down)

To achieve your financial priorities, you need the self-discipline to walk away from some things you want but do not need. It is easier to walk away if you have a budget, and a good understanding of your long-term goals, dreams and desires. 

Creating a Financial Plan

Financial planning is essential. The basic elements are:

  • Budget and cash flow
    • How much is coming in and what are you doing with it?
    • Where is it being spent and on what?
  • Savings
  • Investments
  • Insurance
  • Education
  • Retirement
  • Estate Planning

Following the 55/25/20 Rule

  1. 55 percent of your income should go to essentials such as rent or mortgage, groceries and transportation
  2. 25 percent should go to savings, investments, paying off debt and charitable giving
  3. 20 percent should go to things you want but do not necessarily need

Understanding the Rule of 72

It is critical to start investing as early as possible, so your money has time to double over and over. This principle is called the Rule of 72. 

In simple terms, if you steadily get a 6-10% return, your money will double in 7-9 years, and that amount will double in another 7-9 years. The longer you have your money invested, the more it will keep doubling (also called compound interest).  

Here’s an example:

If an investment promises an 8% annual compounded rate of return, it will take approximately nine years (72/8 = 9) to double your initial investment. 

  •  If you invest $1,000 today,
  • you will have $2,000 in 2031,
  • $4,000 in 2040,
  • $8,000 in 2049,
  • $16,000 in 2058, etc.

Getting Help

A fiduciary financial advisor can help you clarify your goals and develop a plan to achieve them. Fiduciaries are required by law to keep your best interests in mind. 

If you can’t afford one, the American Association of Individual Investors has free resources. Investment clubs and accountability partners can also be useful. The important thing is to educate yourself and connect with people whose values align with yours. 

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This content is developed from sources believed to share accurate information, and provided by Kelly Financial Planning. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and materials provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.