Planning is an ongoing process that must be review and updated every year. It only takes a few minutes to do this but is important as things may have change over time.
The 5 Times When You Should Review Your Financial Plan | Kiplinger by: Eric Roberge, Certified Financial Planner (CFP) and Investment Adviser
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Hello, I'm your host, Mr. Chuck, I retired accountant turn truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence determination. reviewing your financial plan, what is a financial plan? Planning is an ongoing process that must be reviewed and updated every year or every six months. It only takes a few minutes to do this. But it's important as things may have changed over time. To give you an example, I set up my financial plan. And I was doing pretty good I was on track to build up six months worth of expenses in my emergency fund to cover anything that might come up now is only maybe six to seven months away from achieving that goal. And then I had a major repair and my home. Now, a year plus away from achieving that goal. So I had to go back and review my financial plan. And I realized, boy, I'm way off track, I need to reset this and update my numbers, update what my plans are going to be and go from there. So I had to put some things on hold like remodeling a bathroom downstairs, remodeling the kitchen, I need to build up my emergency fund. So if something else would pop up, that is unplanned for I would have significant funds to pay for that. So everything gets put on hold. For those of you who don't know what a financial plan is, it's a comprehensive picture of your current finances, your financial goals and any strategies you set to achieve those goals. Good financial plan should include details about your cash flow, that would be a budget savings. Short term mid term long term debt. If you have too much credit card debt that would also include a debt reduction plan, investments and investing for your future. And most people forget about insurance, you're required to have homeowners insurance, if you own a home, you're required to have auto insurance if you have automobiles with loans on him. He also if you have a family, a spouse who depends on your income and children, he should have life insurance because what if something happened to you? How would they get by, you need to plan ahead for the worst case possible scenario. And then hope for the best. Also, you could also consider disability insurance. What if you're in an accident and you're unable to work for six months, you have zero income, the Disability Insurance could kick in and pay you there's Short Term Disability Insurance that's from the time the event happens to six months. And then there's long term out after if you're off work for longer than six months. And then it will kick in and pay you make sure when you're considering these different types of insurance, you get enough of it to cover your current expenses. So if you're looking at disability insurance, and you have $5,000 a month in expenses, or mortgage car payments, etc, then you got to make sure that that disability insurance is gonna pay you at least that much or more. whatever you can afford, the more the better. I had a kick that in one time when I got sick and was off work for about a little more than six months. So I did they made a settlement with me. They didn't even ask me how long I was gonna be off. They said, well, we're gonna set up I want you to be off work. I have about eight months. Okay, well, we're gonna pay you x. Right now a little bit more would be nice, okay. You never know what's gonna happen. And financial planning, like I said before is an ongoing process that reduce your stress about money, support your current needs, and help you build a nest egg. long term goals like retirement. Financial Planning is important because allows you to make the most of your assets, and helps ensure you meet your future goals. I'm referring to the article on the nerd wallet calm. What is a financial plan. If you don't have a financial plan, you got to start by setting goals. Maybe one of your goals is to pay off your credit card debt. Maybe another goal is to save up a down payment for a home or an automobile. Maybe it's saving up for it. So you can have that first child, maybe saving up so that when your wife has that child, and then quits working, you can get by for a while, until you can adjust your budget. Now, how do you how's that reduce your stress? Well, if you have a budget, and you know how much money is coming in, you know how much money is going out. And you know how much money you can save, whether it's $10 of pay, or $100 of pay or $1,000 of pay, you know, how much is coming in, how much is going out, you're gonna be more relaxed, you're not gonna be worried about an expense that may be coming up. We've talked about budgets lengthy, and it's an important part of your financial plan. How are you going to know how much you can save over a period of time, if you don't know how much your expenses are. So doing that budget is an important step, and your financial planning. Then setting your goals. Once you know what you can achieve, then you can set goals to achieve it in a time period, set some first short term goals and build it up a little bit at a time. And gradually keep increasing them until you reach the amount you're getting to. If you have an employer that has a 401k match, or any type of retirement match, you should take advantage of that. At least contribute the minimum amount to get the match that they're gonna give you if you don't do that you're leaving money on the table and you're leaving a benefit that you can take advantage of it definitely will help you save more money much faster for a retirement, no matter how old you are. He should be considering when are you going to retire? How long do you really want to work? If you're 25 years old, and you're starting a new job? Do you want to work until you're 70? Do you want to work until your full retirement age for Social Security. And by the way, that retirement age that was set at 65 for Social Security was done because at the time, the average lifespan was only aged 61. So the government was hoping you didn't live long enough. So they didn't have to pay out the benefits. And yet you were required to pay into it. They've increased the age limit. It's like 66, and something never months, depending on the year you were born. That is not necessary. A retirement age, that's just the age you have to be to collect the full benefits from Social Security. You can retire at age 50. And then start receiving Social Security benefits at a later age. But you have to provide for yourself. Nobody else is gonna say money for you, maybe your parents and when your inherited whatever they have, but don't count on it because you never know what's gonna happen. Your parents may become ill for a long period of time. And whatever money they have could be gone. You got to take care of yourself first. Got to make sure emergencies don't become disasters. That's why you set up an emergency funds. My repair on my home would have been a disaster if I had a mortgage payment line of credit, a car payment and a bunch of credit cards. I would not have the enough income to borrow more money to fix the home. But I had an emergency fund that pay for it helps you a lot and keeps the stress level down because you know, as something bad's gonna happen, especially if you're living in In an older home, an older home being 30 plus years old, anything can happen at any time, he may need a new roof, you may have a clogged drain where you need to do some major plumbing work, maybe you want to remodel. And when you remodel something, you get into it, they find something else is wrong, that's gonna increase those costs. That's where that emergency fund could help you. Maybe you had enough money for a loan to do the remodel, and then you hit a snag during the process. And it's gonna cost you extra money. If you had a emergency fund, maybe it was enough to cover that. So you're not stuck and getting stressed. And tackle high interest debt, pay off those credit cards, get rid of those payday loans, any title loans that you may have any rent to own payments, because you're paying way too much interest. And that's also a pay here, or buy here, pay here, auto use auto auto, maybe you want to use lat and it was a Buy Here Pay Here a lot. They're charging you a lot of interest, they're just not telling you stay away for things like that. Invest to build your savings. Well, we talked about us employer sponsored retirement plan when they do a match. You also have traditional or Roth IRAs, and you have 529 college savings plan if you have children that are planning that you plan to send to college. These are things you need to look into and be part of your plan. Build a moat to protect and grow your financial well being increased confidence contributions to retirement plan so you have more money instead of less. I've never heard of anybody complaining when they retired it today that they say too much money padding your emergency fund until you have at least three to six months of essential living expenses, and maybe even more using insurance to protect your financial stability. So a car crash or illness doesn't derail you. Life Insurance protect loves ones who depends on your income. Term Life Insurance covering 10 year to 30 year period is a good fit for most people needs. Do you need help, you can select a an advisor to help you come up with some type of plan. I've also watching TV and it just dawned on me I see this commercial for a mortgage company where they're talking to a real estate agent or in a home they're looking at and they asked them if they can afford it and the guy goes well, I think I can. Commercial is, you know apply for their mortgage first get pre approved so you know how much you can afford. That's pretty good. But do you really want the mortgage company deciding for you what you can afford or what house you could buy based on your income. You should plan for this. You should be planning to build up a downpayment. Maybe you can't not afford that home based on your current income with a little bit of a down payment, then maybe you could afford that home. If you had a larger downpayment, maybe instead of a 5% downpayment you go was a 20% down payment and you have the money saved up for larger down payment. You have money save up the pay moving costs, don't forget and you have money save up to buy some furniture, additional furniture that you don't have to go in the home. So planning a had are really help you dictate what you can do. Don't let the mortgage company decide for you. If you're not sure on how much of a mortgage you can afford, there is mortgage calculators out there that you can use. You can go there you can put in the information and you can get an idea of how much he can borrow. How much the monthly payments gonna be. He then you got to factor in the additional cost of real estate taxes and homeowners insurance which is going to be retired required by the lender, and they're gonna have an escrow set up or you have Pay that every month. So maybe your principal and interest is $1,000, your insurance might be $100 a month, and your real estate taxes might be $300 a month. So you're looking at $1,400 a month for that, can you afford that? How would you know unless you had a budget, if you know how much money is coming in, how much money is going out, he can look at $1,400 How much is your current monthly rent $900. Now you only have $500 to make up, because when you move out that rents gonna go away and be replaced by the $1,400. I hope you see where I'm coming from here. And that's what financial planning is all about. It's just not planning for your retirement is just not planning for having a child or for a wedding, or buying a car, or buying a house. It's planning for everything that could happen in your life. plan for the worst. and hope for the best is a motto you should be thinking about. all the episodes for reduce that increase wealth is in my Facebook page. So if you do a search for reduce that increase wealth, find a page and across the top that says podcast. If you click on that, you'll find all my episodes that I've published so far. If you have a friend that you think might benefit from listening to this podcast, please refer them and I appreciate anything that you can do to help promote reduce debt increase wealth is something everybody should be listening to, or at least learning about to help them get through life with their finances. My next article, which you can find in my show notes is from Caplin gjerde.com. The five times you should review your financial plan. plans have the tendency to become outdated the moment they're set down on payment. Just like when you buy a computer. As soon as you buy a brand new computer, something new comes out and your computer is now Alba date. Same thing. You want to review your plan often at least twice a year. But when should you do it other than that. Aside from that there are specific trigger triggers in life that tell you it's time to look at your plan, get reacquainted with it and potentially make changes. And one of those times for me was when I depleted my emergency fund. Review your plan when it's All is calm between life transactions. As you graduate from college and get your first job and now you're settled down, you have a place to live. You should plan for your future. What else are you gonna do? Do you want to buy a home first? Or do you want to buy a car this is the time to make those plans. When life is calm before you get caught up and work before you get caught up with too much debt, plan to keep your debt under control. Keep your credit cards on and that's a good time to do it. Another good time is after you buy your first home, you get moved in three, four months later. Now what what's your next goal you'd like to achieve? Well, you need to review your plan and take buying the house out and put in the next item. Just to give you an idea, that's what we're talking about. You want to be successful financial planning. He got to keep in tune with what's going on in your life. Reveal your plan when you have a lot of goals to prioritize. So maybe you have a budget for traveling and you're setting up a children's college tuition fun. You get an advanced degree or changing careers or you want to move closer to family or you reach financial independence by age 55. Reaching financial independence by 55. That's a goal I would strive to hit when I was 50. And I didn't make it I kept on going but you need to put these things down when you You're in your 30s or 40s, you have a lot on your plate, maybe you have a home, maybe you have your second home, maybe you have two or three children, your wife, quit working, you want to buy a camper so you can take your children out in the wilderness and camp. Whatever it is, you need to update your plan and keep it as current as possible. And when you have a lot of things that you're setting goals for, that's the time to look at your financial plan and see where you are, and where you need to be and make your budget. If you don't have a budget, you need to do a budget. If you got that much on your plate, you need to have a budget to know how much money is coming in and how much is going out. Or you're spending too much money and where you could cut back and where you can save more and review your financial plan after finalizing major changes or transactions like you bought that first home. Like I said earlier, or maybe your was one of your goals was buying that dream car, you always want it and you achieved it. Well now you need shaved it now it's time to look at your plan and reset your goals. Maybe increase your retirement savings now that you have the money because you're not setting money aside for other things. or increase your children's college tuition fund so that you don't go broke or they don't go broke trying to get through college. Review your plan when you have questions about what to do next. If you're in doubt, look at your plan, see what you were planning and stick to it. Don't reset your plan to something different. And then two months later reset back to where it was. You have a plan, we're looking down the road long term, and you need to stick to your plan. When you have any questions on what to do, you should be looking at your plan, find out or get an idea. And review at least annually on an ongoing basis. Even if it's not one of those pauses in your life. Or a place where you already achieved one year goals that you still need to update it constantly. And the more you do it, the more you'll be aware of what's going on in your finances. And there's articles not talking about it. They should also be planning for taxes. Not only real estate taxes, which is not much to plan for if you have an escrow and you're paying the mortgage company, I can guarantee you your real estate taxes gonna go up every year that your monthly payments gonna go up every year. So you need to plan for that. income taxes, the more money you make, the more things the more complicated your life gets, the more complicated your income taxes get. If you're doing them yourself, you may want to consider having a tax preparer, or somebody who is familiar with all these items that can help you plan for your taxes. If you're self employed, you need to make estimated taxes. How do you plan for that, if you're self employed, and you have employees, you got to pay payroll taxes, you got to make sure you don't forget it because you can get behind really fast, really quick and get in all kinds of trouble. And it don't take long then a former accountant, I've seen that happen to many of businesses, and a lot of times they can't ever survive it. Also look at your investments do or do you have a financial advisor taking care of your financial investments? If you have a 401k through work, you need to take a look at it. How is it balanced? Is it too aggressive and you got 10 years older, maybe you should make it a little bit less aggressive. Or if you're younger, you need to maybe you're too conservative and you need to make a more aggressive consult a financial advisor can help you with these things. Also, you need to rebalance your portfolio at least yearly once you get over $50,000 because some things are going to go up in value or pay more dividends. If you're reinvesting the dividends and the same item you can get out of balance. Your stocks could be at 99% and your bonds could be at 1% and you want it at 9010 For example, so you need to sell some of them stocks and buy some more bonds. to rebalance that, what you want to do, you got to look at that also, you need to look at what was your capital gains, and is that gonna affect your taxes in any way shape or form in so that your investments is gonna, in fact affect your tax return. If that's the case, you need to plan on both ends. So the more you know, the better off you're gonna be. Planning ahead is a lot better than trying to figure out what to do after the fact. Because once the years over, there's very little you can do to decrease your taxes. The only thing you can do is put money into a IRA. And that's going to decrease your income by 6000. And if you're already an employer plan, you can't even do that. farther ahead you are, the more you know about things going on your life, whether it's your budget, your insurance, your life insurance, your income taxes, your property taxes, your investments, what you're investing in, is this something you agree with or disagree with? Is it properly balanced? Are you in all across the board sectors, so if one sector or part goes down, you're not going to get nailed with a big loss. It's all about planning. I'll be back in one moment with my final thoughts. If you listen to this podcast reduce that increased Well, on an Apple device. Scroll through all the episodes towards the bottom, and you can select write a review, and leave your comments. And you can rate this podcast. I appreciate all feedback. And I thank you for your time in doing so. reviewing your financial plan, on an ongoing basis is a must. You should also be reviewing and updating your budget every month. As your expenses change, maybe monthly, your groceries may be going up a little bit every month. So you need to update your budget to reflect that price of gasoline goes up and down almost daily, you need to adjust your budget to reflect those things. Just like you need to look at your financial plan. If you have one. If you don't have one, you need to set one up now. Weather doesn't have to be for everything I talked about. They should at least include things important in your life today. A budget should be the number one thing and your financial plan. The number two thing if you're struggling to pay off credit card that should be a debt reduction plan. How are you gonna go about paying off that credit card debt, the budgets gonna help you identify money where it's being wasted that you can maybe do away with buying some things and put that money towards your emergency fund first, and then build that up, and then start tackling that credit card that you're trying to get rid of. And this is an ongoing thing. It should be done monthly, you should review your financial plan. Know, every six months minimum. or whenever you've achieved a goal. Maybe you paid off half your credit card debt, you should go look at your financial plan and update. Maybe it's only gonna take your three more months and you're gonna be credit cards paid off. Maybe it's gonna be longer, that you should update it and to reflect what's going on today. in your life. That way you will know and you have a better understanding of your finances and where you're going with your finances in your life. Life. It's not just about saving for retirement. It's about saving for everything that's going to come up everything that you may want to purchase throughout your lifetime. saving for retirement is important. Saving for your children's college education is important and saving to buy that first home is important. It all depends where you are. In life, but having a plan, knowing what you want, and achieving your goals will make you a better, happier, less stressed person and you will be much better off over the long term.