How Does Your Money Future Look?
Updated: Sep 8, 2021
In this publication, we talk a lot about how to keep money from slipping through your fingers. We’ve talked about how to get out of debt and how saving and investing can make your money grow over time. We even looked at ways to protect yourself from financial fraud.
In this section, we start exploring what you can do to ensure your financial future by looking at areas concerning:
Planning for contingencies
Planning for retirement
Personalizing money management to achieve your goals and aspirations
PLAN FOR CONTINGENCIES:
THINKING ABOUT TOMORROW
Terrell and Maya’s most important long-term goal was building up a $10,000 down payment for a home. Both had good jobs and, to reduce expenses, they agreed to drive reliable older cars. With good incomes and low expenses, they were able to put $500 a month into a money market deposit account. With interest, this amount of monthly savings would enable them to save the down payment and buy their home in 24 months.
But, one cold morning, one of the cars would not start. It was time for a new battery, which cost $52. With this unexpected expense, Terrell and Maya were only able to save $448 that month. Not discouraged, the following month they resumed their savings plan. There were other expenses too — a dental bill, some higher utility bills they had not planned for, and an emergency trip to see Maya’s mother, who had fallen ill. Each time, they used their money market deposit account to cover the expense, and the next month they went back to saving $500. They were able to buy their home just a few months beyond the planned time frame.
USE INSURANCE TO PROTECT YOU, YOUR ASSETS AND YOUR LOVED ONES
Insurance is crucial to financial success. Suppose you can’t get to work because of a car accident, or you become too sick to work for a long period of time. With a leaner paycheck and greater expenses, could you afford to pay your bills? Think about a recent natural disaster you’ve seen in the news. Do you have enough savings to rebuild and refurnish if your home was damaged?
Insurance protects your dreams and everything you’re working to achieve. It helps you manage risk by passing some of it along to a third party — the insurance company — in exchange for the payment of a premium.
Here are three primary reasons to be insured:
1. Things happen. Accidents, illnesses, injuries, thefts and natural disasters happen all the time. Any of these events can drain your savings quickly and put you into debt.
2. The law says so. Almost all states require drivers to carry auto liability insurance that pays for medical costs, vehicle repairs and other costs. The one state that does not require liability insurance still requires drivers to show that they can provide funds to cover costs if they are at fault. And, under the current provisions of the Affordable Care Act, all Americans (with a limited number of exceptions) either must have medical coverage or pay a penalty.
3. Lenders say so. Your car or home can be seized by a lender if you default on your loan. Lenders don’t want to lose their investment, so they insist on certain levels of coverage.
Establish Your Emergency Fund
If you were in Terrell and Maya’s place, would you be able to handle unexpected expenses? Emergencies can send your family into financial crisis. Even relatively small costs like cellphones that get dropped in water, veterinary bills when the dog eats something he shouldn’t, and helping friends or family in need can throw off your monthly budget.
Some of the top reasons for having emergency funds include medical bills, job loss, and car and home repairs. In a survey by the Federal Reserve, only 48 percent of respondents said they could cover an expense of $400 without borrowing or selling something. Other research shows that households with emergency savings below $500 are more prone to worry, loss of sleep and other ill effects than households with more savings.
Assess your emergency savings. If you do not have at least $500 on hand, go back to the financial goal-setting section in Part Two and consider setting a SMART goal to start your emergency fund.
PLANNING FOR RETIREMENT
There are eight key areas to consider when planning to support yourself in retirement:
1. Work. How long you will work before retiring, whether you can phase your retirement or work part time, and what to do with buyout offers.
2. Social Security. When to take your benefits, how much you will receive in benefits and any special situations (such as death of a spouse).
3. Home. How best to utilize your home for your retirement planning, including downsizing and understanding reverse mortgages, home equity lines of credit and home equity loans for supplementing retirement needs.
4. Insurance. How Medicare works, planning for long-term health care, life insurance needs and limiting health care costs as you age.
5. Retirement Plans. How and when to use retirement plan funds, understanding required minimum distributions and establishing retirement accounts either on your own or through your employer.
6. Savings and Investments. How to manage your finances to last throughout your lifetime, learning to manage expenses as you age and sequencing your liquidation of assets.
7. Debt. Paying off debt before you retire, managing your debt before and during retirement, and handling financial crises or emergencies when you retire.
8. Fraud. Being alert to senior-targeted frauds and scams, knowing when to pass control to others for financial help, and taking steps to create a trusted team who can look after you as you age.
Declare Your Retirement Goals
Take a moment to write down three goals for your ideal retirement. For example, if you want to travel with family, your goals could be something like this:
1. Have enough saved in my 401(k) to pay for a family trip every three years.
2. Be in good enough health to enjoy traveling with my family.
3. Use my Social Security benefits only for living needs, not traveling.
Personalize Your Money Management
Developing your own money management system will help you achieve your financial goals and aspirations. The next few sections outline simple steps for effective money management.
MONITOR YOUR FINANCIAL GOALS
As you make progress on your goals, you undoubtedly will have to make adjustments. Use the worksheets on Smart About Money to help you prioritize, monitor (with a financial buddy) and adjust your goals,
Get Help: Financial Coaching
In addition to using financial apps or other methods to track your spending and saving, you may find it useful to work with a financial coach. Financial coaching is different from financial planning because it allows you to choose your own goals and personalize your money management techniques to meet those goals.
MANAGE AND MONITOR YOUR SPENDING AND SAVING
Use mobile apps to track your spending. It may take some time and effort to set up, but you might like the convenience of having all your spending and savings information on your smartphone or other device.
There are many mobile budgeting and spending apps available for free and for a fee. Some things to consider when selecting an app:
Privacy: If you don’t like to share your private financial information online, then apps might not be the best option for you. Mobile apps are widely used and have built-in security measures; however, any time you share your private information with a third party you are increasing your risk.
Password-protect your device: to safeguard your information if your phone is lost or stolen.
Advertisements and sales pitches: Many apps are free but feature advertisements for fee-based goods and services. Other apps continuously try to sell you upgrades and add-ons.
Setup and maintenance take effort: Even after you’ve done the legwork to connect your various financial accounts to the app, you likely will need to continuously check and update information to make it useful. Just as with a paper or spreadsheet budget, the app can only do so much for you. You get out of it what you put into it.
Research customer reviews: Look up customer reviews and complaints about specific apps before committing to one.
Congratulations on starting a new financial life!
No one said that dealing with money would be easy, but it can be exciting and satisfying. Financial planning gives you the tools you need to meet goals and overcome challenges along the way.
Your Spending, Your Savings, Your Future covers life skills you can use for the entire journey — including the basics of saving, investing, budgeting and goal setting. The activities in this workbook will help give you an idea of where you are financially and what to do next.
If you slip back into old habits (such as overusing your credit card), you will be able to use this publication to recover and get started again. Saving and investing are not the end goal. A pile of money isn’t a life. It’s what you can do with that money to meet your life goals that matters.