Have a Financial Plan

Getting on the right financial path means having a plan.  Know what you are investing for and what your goals are.  If you are investing for retirement know how much money you need to accumulate and how you plan to do it.  Have a plan that helps you make your investment decisions and tells you how much risk you can take at different stages in your life. Put the plan on paper, or in Excel. If you can’t come up with a plan yourself, seek advice online, or if you must, from a financial planner.

Without a plan, your investment choices will lack direction and likely lag the market.  Here are some examples of investment plans for specific scenarios.  And remember, your scenario is different than other investors, so find what will work for you.

Young Person in Debt

If you’re young and have a lot of debt, your financial plan should be first and foremost to get out of debt.  If it is credit card debt, you plan should be to save every penny you can and pay it toward your debt.  At the same time, you should know what put you in debt and make sure it doesn’t happen again.  In this scenario your main focus is gettin rid of high interest rate debt, and secondarily to start saving.  If you have any employee savings plans that offer matching, make sure that you take advantage of them.  Make a plan to get out of debt.  When you’ve reached your goal, reassess and start your next plan.

College Grad Saving for a House

If you’re a college grad you probably have a lot of student loan debt.  Look at the interest rates on your loans and find out if they are tax deductible.  Use this information to determine if you should focus on paying off your student loans early or, if they are much lower rates than investment rates, you can focus on investing to save for a down payment.  Include goals in your plan to save a predetermined but achievable amount of money each month to put toward your savings.  Since you’ll need the money in the near term for a downpayment on a house, you should invest in something that isn’t too risky.

Fortysomething and No Retirement Savings

If you suddenly wake up in your forties and realize you have no savings for retirement, don’t panic.  Make a plan to start saving and investing immediately.  You’ll need to create a budget and find out exactly where your money has been going.  Then you’ll need to make some lifestyle changes that will put you in position to start saving.  At this point you are years behind your peers so you’ll really need to work on finding money to save if you want to retire some day.

Middle Age Looking to Retire Early

Maybe you’re a middle aged person and have done a good job saving and investing, but would like to move up your retirement by 5 or 10 years.  You’ll need a plan that will either accelerate your investment returns, increase your savings contributions, or maybe both.  Your plan could slightly increase your risk profile of your investments.  You could also look into finding other income sources to bolster your savings.  Moonlighting, consulting, asking for a raise, or changing jobs might also help you get there faster.

Parent of College Bound Children

Many people are good savers and investors but neglected to realize how much children cost.  I read last week that the average expenses for a public university, yes a public university, are approaching $170,000 for four years!  It’s not a requirement for you to pay your children’s education, but a little help could greatly reduce their student loan burden after graduation.  Your plan should be to keep investing in any employer sponsored plans, and in addition, start funding any tax-favorable education accounts for your children as soon as you can.

In conclusion, as you can see from above, there are thousands of scenarios and they all call for different plans.  Your plan will not be perfect but make sure it’s reasonable or you will get frustrated and lose motivation to stick with it.  And when you’ve made your financial plan, put it into action immediately.  Monitor your success over the years, and if it looks like your investing plan isn’t working, find out why and make changes.

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