Develop and Implement a Financial Plan

Developing and implementing a financial plan should be realistic a definitive timeline. For example, assume that Jennifer age 26 earns $28,000 annually and wants to save $15,000 for a down payment on a home within the next three years. She needs a specific financial plan to attain her goal. In this case, Jennifer has $250 deducted from her salary each month, which I s automatically deposited into a savings account. She has also cut back on the purchase of clothes, entertainment, and vacations and saves the money instead. She avoids impulse  buying  and pays off her credit card balances each month to avoid paying exorbitant rates of interest. ln addition, Jennifer used to spend an average of $5 daily to buy lunch at a nearby restaurant; to save money; she now takes her lunch to work (“brown bagging”) rather than eating out. At the end of three years, Jennifer has accumulated $15, 000 and has attained her goal. Her success is due to a realistic financial plan with a definite time limit.

In the preceding example, we discussed only one financial goal. A more comprehensive financial plan with numerous financial goals may require the assistance of professionals. A Chartered Life Underwriter (CLO), Certified Financial Planner (CFP), or Chartered Financial Consultant (ChFC) can provide valuable assistance to help you identify your financial goals and to develop effective strategies for attaining such goals. Competent insurance agents can recommend the right type and amount of life and health insurance, disability income insurance, homeowners insurance, and auto insurance to meet your insurance needs. A competent and ethical account executive of a brokerage firm can provide valuable advice on the various types of investments to meet your investment goals. Finally, you may need an attorney to draft a will or other trust documents, especially in estate planning.

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The Benefits of Finance Planning

Financial planning offers numerous benefits to consumers. The major benefits include the following:

Attainment of financial: Financial planning can help you attain your financial goals. These goals, as noted, may include accumulating a fund for retirement, providing financial security for yourself and your family, establishing a college education fund for the children, buying your own business, or getting out of debt.

A Higher standard of living: Financial planning can also increase your standard of living Standard of living refers to the goods, services, and luxuries that you can purchase with your present income. Obviously, raising your income is one way to raise your standard of living. For example, if you earn $50,000 annually, you can buy more food, clothes, housing, travel, entertainment, and other goods and services than someone who earns only $10,000 a year.

However, financial planning can increase your standard of living even if your income does not increase substantially. Because of lack of financial knowledge, you may be spending more than is necessary for needed goods and services. For example, you may be paying an exorbitant rate of interest because of high credit card debts and impulse buying; you may be paying more for automobile, homeowners, life, and health insurance than is necessary; you may have to declare bankruptcy if you cannot pay catastrophic medical bills; and you may be paying higher than necessary federal and state income taxes. In addition, some people invest in highly speculative investments and incur substantial losses. Still others fail to plan for retirement and experience a reduced standard of living after retiring. Financial planning can help you avoid these mistakes and thus increase (or maintain) your standard of living.

Protection against major risk. Financial planning can give you the knowledge you need to protect yourself against major risks that can result in great economic insecurity. These risks include the risk of premature death, insufficient income during retirement, poor health, unemployment, destruction or damage to your home and personal property because of natural disasters, and a lawsuit for damages because you have injured someone.

Saving for Specific Needs

When looking to the future a common financial goal is to save money for specific needs. Consumers typically save for a wide variety of reasons. A survey by Merrill Lynch showed that retirement is the major reason for saving, followed by a desire for financial security for the family and children. Saving for college and a home or to pay a title loans Atlanta is also important to many consumers.

It is also desirable to save for an unexpected emergency. Consumer experts typically recommend that you accumulate a liquid emergency fund equal to four to six months of take-home pay. Thus, if your monthly take home pay is $1,500, you should have a liquid emergency fund of $6,000 to $9,000. An emergency fund is especially important with respect to the risk of unemployment. Most workers will become unemployed several times during their working careers. A liquid fund of four to six months of take-home pay can substantially reduce the painful financial shock and economic insecurity that result from unemployment.

Although saving for specific needs and having an emergency fund are extremely important, many Americans have little or no savings. Saving is a low priority item for many Americans.

Shows that household savings in the United States as a percent of disposable personal income (personal income less personal taxes) averaged only 4.6% in 1993, last among our major international competitors.

Protection of family and Property

Another important goal of financial planning is the protection of your family and your property against a certain risk that create economic insecurity. Risk traditionally has been defined as uncertainty concerning the occurrence of a loss. Certain risk can create great economic insecurity for individuals and families. These risks include (1) premature death of a family head in which the family’s share of the deceased breadwinner’s earning is lost forever; (2) insufficient income during retirement and reduced standard of living; (3) poor health and catastrophic medical bills and the attendant loss of earned income and (4) (4) pay high interest on commercial truck title loan.

Retirement planning

Retirement planning is an important financial goal for looking a comfortable future before you get a semi title loan. Most workers want to be financially independent and have a comfortable retirement.

Although most workers are eligible for social security benefits, for average income workers, social security retirement benefits will replace only about 43% of their gross earnings in the year prior to retirement. Thus, most retired workers will need additional income just to maintain their present standard of living during retirement. You can obtain additional income by having a separate retirement program and, if available, by participating in a private pension plan sponsored by your employer.

Although retirement planning is important, many workers are not saving enough to retire comfortably. A study by Merrill Lynch showed that the baby boom generation (those born between 1946 and 1964) has saved only about 35% of the amount needed just to maintain the standard of living in retirement that they have attained during their working years.

In addition, the amount of financial assets accumulated by older workers on the threshold of retirement is relatively small, especially for minority workers. The Rand Corporation analyzed the amount of financial assets owned by older households and individuals ages 51-61. The study showed that in 1993, the median amount of financial assets owned by middle-aged white households was only $17,300. For middle-aged blade households, the median amount of financial assets owned was only $400, and for Hispanic households, only $150 these amounts are small. Thus, any supplemental retirement income will also be small. As a result, such workers will likely be faced with a reduced standard of living after retirement.

The preceding data show that many workers are inadequately prepared for retirement. Saving for retirement should receive greater emphasis in a financial plan even if the amounts saved are relatively small. Because of the powerful effect of compound interest, small amounts saved regularly can accumulate to substantial; amounts over a long period. For example, if you save and invest only $10 monthly in a growth stock mutual fund in a tax-deferred retirement plan and earn an average annual return on 10%, you will accumulate more than $22.000 at the end of 30 years then you can get an Atlanta car title loan.

Minimizing Taxes

 Another important financial goal is to minimize the taxes that you pay for your semi truck title loans. Consumers pay a wide variety of taxes, many of which are hidden. These taxes typically include state and federal income tax, state and local sales tax, federal estate tax, property tax, gasoline tax, telephone tax, and numerous additional taxes. These taxes overall consume a large part of your total income. An average income worker can easily spend 40 percent or more of his or her total annual income on taxes in all forms. Thus, an important financial planning goal is to minimize the amount of taxes that you must pay, which then increases the amount of income available for saving and investing.

Estate Planning

Estate planning is another important part of a total financial plan. Estate planning is a process for the conservation and distribution of a person’s property and wealth after he or she dies. The general objectives of estate planning include conserving estate assets after death; distributing property according to the decedent’s wishes; minimizing federal estate and state inheritance taxes; providing liquidity to pay the costs of estate settlement; and providing for the financial needs of surviving family members.

View of Financial Planning Over the Life Cycle

The following section provides a brief overview of some important financial factors that you should consider in the development of a financial plan over your life cycle. It sets the stage for specific financial planning recommendations that will be discussed.

After you finish college or school and are earning an income, get into the habit of saving money. One basic rule is to save at least: 10% of your gross income. You could save part or all of your next pay raise. The money you save should be deducted automatically from your paycheck by payroll deduction; that way you reduce the temptation to spend the money. In addition, resist the temptation to spend money recklessly by the overuse of credit cards. Younger consumers tend to spend a disproportionate amount of their income on new clothes, costly vacations, and new technology (such as cellular phones). They typically finance such expenditures by using credit cards that carry high-interest rates. In addition, you should carefully evaluate the decision to purchase a new vehicle that has high monthly payments. High monthly payments on a credit card will leave little or no discretionary income available for saving and forces you to get a car title loans in Atlanta.