financial plan

Most Americans Don’t Have a Financial Plan But Should

June 20, 2018 By Jackie Cohen Leave a Comment

Most Americans Don't Have A Financial Plan, But Should

Do you have a financial plan? A real, written plan with goals, targets, and timelines, not just “I plan to stay out of debt this year?” If you have no such plan, well, at least you have plenty of company.

According to Charles Schwab, only 25 percent of Americans have a written financial plan. The good news: Schwab’s 2018 Modern Wealth Index survey shows that investors with a written plan tend to have greater fiscal discipline and better money habits.

A written financial plan is the monetary equivalent of an exercise buddy who works out with you, motivates you to stay on track, and occasionally swats Oreos out of your hand.

It serves as a template to remind you of your financial goals and keeps you from frivolous spending (the monetary equivalent of Oreos).

Why You Need a Financial Plan

The Schwab poll finds that, compared to non-planners, planners are far more likely to pay bills while still saving money every month (75 percent to 33 percent).

They are also more likely to have an emergency fund (65 percent to 24 percent), life insurance (62 percent to 39 percent), and an overall feeling of financial stability (62 percent to 32 percent).

Conversely, only 38 percent of planners live paycheck to paycheck, as opposed to 68 percent of non-planners.

Unfortunately, financial planning is perceived to be a rich person’s tool. Approximately 45 percent of non-planning respondents believe they don’t earn enough money to warrant a financial plan.

Comfort Versus Wealth

Given that respondents define financial comfort as $1.4 million on average and wealth as $2.4 million, many Americans look at their accounts and conclude that financial planning is not for them.

That premise couldn’t be more wrong. If you have less money, isn’t it even more important that you plan and use your money wisely?

Financial planning doesn’t have to be complicated – and it doesn’t even require professional services. While it’s best to consult with financial professionals, and low-cost options are available, just under half of survey respondents created their financial plan without professional financial assistance.

Other Roadblocks

Other survey roadblocks to financial planning include a lack of financial understanding or lack of confidence. It never occurred to 20 percent of non-planners to make a financial plan, and another 20 percent claimed to not know how to make one.

If you’ve read this far, you know the importance of a written financial plan – and if you don’t have one, we can provide a simple guide to starting one.

Start by defining your goals. Are you saving for a home? Planning to send kids to college? How about retirement and emergency funds? Do you plan to pay down debt? Once these goals are written down and quantified, you can prioritize your goals and start funding them.

Create a Budget

To allocate money to any goals, you need a budget that provides a surplus. Lay out your monthly income and regular expenses. Don’t forget to include annual expenses, such as property taxes.

If you don’t have enough of a surplus to meet your goals – or you don’t have a surplus at all – look for places you can trim your spending and ways to increase your income. Reconsider your goals if they don’t seem realistic.

Now comes the tricky part – executing your plan. It takes willpower and financial discipline to avoid overspending and create savings. Use your written plan to remind you that you have greater goals. Plenty of online resources are available to help you adjust budgets and plans.

If you need more help with financial planning or executing your plan, seek the assistance of a qualified financial professional. They aren’t just for millionaires.

This article was provided by our content partners at MoneyTips. Photo ©iStockphoto.com/gpointstudio

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Plan Your Financial Future with WeVest

August 2, 2017 By Mary Newton Leave a Comment

Financial planning apps are everywhere, and each has something different to offer. WeVest is a fairly new financial planning app that offers a new perspective on saving money and growing your net worth. The app promises a straightforward and inexpensive solution to you financial planning needs. But how well does it keep those promises?

How WeVest Works

When you create a WeVest account, you have to answer a few questions. In order to get your full financial picture, WeVest asks you basic questions about your assets, debt, income, age, and more. These questions allow their algorithm to create separate accounts on your dashboard for each item, as well as categorize you with peer groups who use the app. Then, WeVest asks about your saving goals. Their primary options are saving for retirement, building a college fund, and paying off credit card debt.

WeVest% and Your Financial Plan

The primary goal of WeVest is “to optimize the growth of your net worth in a way that achieves your goals.” Using your answers, WeVest algorithms formulate a financial plan specific to you, using the money you are willing to invest in yourself. Your WeVest% is the percentage of your income that you want to put towards growing your net worth. Your WeVest% is divided according to your goals – savings, retirement, college debt, etc. – in the most efficient way possible.

While this seems a lot like putting your money in someone else’s hands, fear not: WeVest also allows you to compare several recommended plans and pick the one you prefer. You have total control over your financial plan, supported by WeVest’s professional advice. In addition, you have constant access to that financial plan whenever you need it.

Once all your information is in and you have decided which financial plan you prefer,. Your dashboard shows how much money is going to which “bucket” – savings, debt repayment, retirement, etc. – for that month. You are given a graph that will measure and predict the growth of your net worth and savings, as well as whichever other buckets you prioritize. Finally, you can also see your exact current net worth with assets and liabilities, your financial plan, and a savings comparison between you and other users in your peer group.

WeVest Pricing

WeVest is not a free service. Their plans consist of a $4/month plan or a $35/year plan. Both plans have identical benefits, with the exception of the $35/year plan offering a 27% discount from the monthly plan. When you sign up, you have to select a plan and input your card information. However, you have a 45-day free trial before WeVest takes money from your account. You may also cancel your account at any time. This way, if you think you may use the app regularly, you can still sign up for the yearly plan knowing you have time before fully committing. This app boasts the low cost of its services in comparison to face-to-face professional financial planners.

WeVest Drawbacks

WeVest offers some fantastic insights into your financial planning, but it does have its drawbacks. Its primary drawback is its accompanying app. Rather than having an app which allows you to log in and view your information on your phone, WeVest’s mobile app is a simple calculator. It is free, and allows you to calculate simple savings projections for a large purchase, your child’s college tuition, or retirement. While these are useful, they are also pointless if you have an account with WeVest. Furthermore, toggling the “See The Full App” option within the mobile app simply opens the WeVest page in your mobile browser.

WeVest also caters more toward adults starting in their mid to late twenties with a stable, full-time job. College saving plans are geared towards planning and saving for your child’s future tuition rather than your own. Each financial plan prioritizes retirement funds. If you are a college student with a part-time job looking to get ahead in the financial planning game, or you are retired but still looking for a place to manage your finances, WeVest is not that place.

WeVest also requires a separate account for each individual item. For example, you need a separate account for student loans, a separate account for your retirement fund, a separate account for your savings, etc. Having this many accounts seems impractical, and having to input this many different accounts gets confusing on the website.

Is WeVest Worth It?

WeVest is perfect for the right people. If you are looking to keep track of your retirement fund, flesh out your savings, or invest in a home, WeVest has exactly what you need. If not, you may be better off looking elsewhere. WeVest is an incredibly thorough financial planning app that is truly a bargain for all it offers. If you want to invest in your financial future through financial planning, look no further than WeVest.

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Photos: WeVest

The Importance Of An Emergency Fund

November 1, 2012 By Jeffrey Strain 37 Comments

One of the most important assets that anyone can have when they are attempting to get their personal finances in order is an emergency fund. As any adult knows well, even the best laid plans rarely turn out exactly as planned. The unexpected happens and when it does, it usually costs money. An emergency fund is there to take care of these unexpected expenses so that it isn’t necessary to take on additional debt.

While your emergency fund probably needs to be bigger than you think, the first goal is to try and put together even a modest emergency fund. There are many ways to do this. Some are able to find their emergency fund in their closet. Others snowflake their way to an emergency fund. No matter how you decided to build it, it’s important to begin and to know it will take time to fund.

The most important aspect of an emergency fund, in my opinion, isn’t that it’s there, but how having it changes the dynamic of your personal finances. This isn’t usually talked about, but I think it’s an important aspect to take a few moments to contemplate as it really is the reason that you need to get an emergency fund in place. When you don’t have an emergency fund, you are in a constant reactive mode when it comes to personal finances. When an unexpected expense appears, you are forced to scramble to find money to cover that expense. Chances are that you’ll have to put other important financial matters on the back burner while you try to put out the current issue. This, in many cases, can ultimately cost you even more money. When you don’t have an emergency fund, you end up being reactive to your finances rather than proactive.

It’s extremely difficult to get your finances in order when you are constantly reacting rather than moving forward with a proactive plan. That’s exactly what an emergency fund allows you to do. It’s a security measure that allows you to remain proactive with your financial plan even when the unexpected happens. It’s a mini self insurance policy that helps to guarantee that even when the inevitable stumbling blocks appear, they don’t derail your entire financial plan. These emergencies simply becomes small bumps that can be immediately resolved.

Having this confidence also allows you to be proactive in getting your finances in order without the constant fear and worrying that your plan is on the verge of falling apart. An emergency fund gives you the needed confidence to make the difficult financial decision which need to be made to get your finances in order. While this confidence isn’t something that can be measured monetarily, it can be the difference of success and failure when it comes to achieving a long term financial plan.

It’s reasons like these that most financial experts feel that having an emergency fund needs to be addressed at the very beginning for anyone trying to get out of debt or improve their financial situation. An emergency fund is much more than simply a sum of money to be used for unexpected expenses, but a foundation that gives you the confidence and security that bettering your finances isn’t a waste of time because it will be derailed time and again.

(Photo courtesy of KrissZPhotography)

You Can’t Wing It

August 24, 2012 By Jennifer Derrick 8 Comments

I have a relative who lives his entire life in “day to day” mode. Everything seems to happen to him by accident. His kids were unplanned (big oops since he can’t really afford them) and he has no career path but instead takes jobs randomly. He has no long term financial plan (or savings) so when something goes wrong, it’s a total crisis. Everything from vacations to simple errands are done on whims. While there’s nothing wrong with having a little spontaneity in your life, going through life without a plan is not going to help you achieve financial success. While there are rare stories of people inheriting or winning millions of dollars, most people don’t get rich that way (and those that do will eventually lose it all without a plan). Most people get rich by thinking and planning ahead.

The biggest problem with not planning ahead financially is that your entire life becomes a crisis. Everything from a dead car battery to a broken refrigerator becomes a huge deal. If you don’t know where the money for repairs or unexpected expenses is going to come from, you run around in a panic trying scrape money together. It gets worse when something really big happens like a death or illness in the family. If you don’t have a plan for dealing with the expenses, the estate, or the lost income, you can quickly find yourself hundreds of thousands of dollars in debt with no way to dig out. Talk about living life in a panic. Dodging bill collectors, always looking for spare change under the couch cushions, and living in fear of what will go wrong next is no way to live. It’s too stressful.

You’ll never get ahead this way. Running from one crisis to the next uses up all of your energy. Your money flies through your fingers too fast for you to figure out what to do with it. If you have a plan, on the other hand, you always know where the money for things is going to come from. When you wake up in the morning to find the fridge has died, you’re still inconvenienced because you have to go choose a new one and wait for delivery, but you don’t compound that by wondering where the money is going to come from. When someone gets sick or dies, you’re able to deal with the emotions involved instead of freaking out about the money. Having a plan frees you from the crisis mentality and gives you room to breathe. Things are still stressful, but they will get back to normal more quickly.

Beyond the crises of everyday life, a long term plan is the only way to prepare yourself for retirement, paying for education, or your own medical care. You can’t just wake up when you’re sixty and say, “I think I’ll retire today” or “It’s time to pay for junior’s college, I’ll just write a check.” To do that successfully requires thinking about it and planning for it for decades. You can’t just wing it. You have to know how much money you’ll need, how to save wisely, and where in your budget that money will come from. If you’re seeking to protect your assets from disability or disease, you need to have planned for it by purchasing insurance and saving. Financial success is all the result of a long-term plan.

Sometimes even the best laid plans fall through, unfortunately. You can make a lot of plans and still end up in trouble if the expenses exceed your plan or something really terrible happens. But the fact that a plan may not work out isn’t a reason not to plan. Let’s say you have a plan to save a million dollars saved for retirement and, for whatever reason, you don’t make it. You only get to $800,000. You still have $800,000. That’s far better than the $0 you would have had with no plan. Planning will save you more often than it will leave you stranded. So make a plan, stick to it, and tweak it as you go along and you needs change. You’ll be far better off than people like my relative who just wing it.

(Photo courtesy of Robert S. Donovan)

Pushed Out of the Workforce. Are You Ready?

June 1, 2012 By Jennifer Derrick 3 Comments

We all tend to think that retirement won’t come until we’re in our sixties or even seventies. We think we have plenty of time to save and prepare for that next phase of our lives. But what happens if it comes sooner than you think? In some industries/occupations, it’s not uncommon for people to be subtly pushed out of the workforce in their fifties (or even younger).

Younger workers or contract workers cost less so some employers encourage older workers to take early retirement, or simply lay everyone off and replace them with younger or contract workers. If you’re laid off from a job and you’re in your fifties, it can be difficult to find a new job because employers know you want/need more money than a younger person. Even if you’re willing to take the lower salary, you may still not get hired because the employer assumes that you are older and therefore set in your ways and difficult to train. Either that or they assume that your skills are out of date. Whatever the reason, you may find it very difficult to get or keep a job until you’re ready to fully retire.

All of these are subtle forms of age discrimination that are impossible to prove or fight against, but which may result in you having to retire earlier than expected. Employers aren’t refusing to hire you because of your age, specifically (which would be illegal), but because they want to save money and bring in younger workers that they can mold and who have more current skills. These are all legal reasons to refuse to hire an older worker because none of them can be proven to be related directly to age. Are they ethical? You can debate that forever. But they are legal. So what do you do? Here are some strategies.

Save Early

While you’re still young, employed, and earning money, you have to keep in mind that retirement may come earlier than you want (and through no fault of your own) and prepare accordingly. The first thing to do is to not wait to start saving. Too many people wait until their kids are grown and gone before they start seriously saving for retirement. Unfortunately, that is about the time that you may find yourself pushed out of the workforce. You need to save as much as you can as early as you can and keep adding to it.

Carefully Allocate Your Savings

You also need to save in vehicles that you can touch in your fifties. You can’t withdraw from many retirement accounts until you’re fifty-nine and a-half without paying heavy penalties (unless you meet some very specific conditions). If all of your money is tied up in these restricted accounts and you need the money, you could be in trouble. Make sure you keep some money in regular investment or savings accounts that you can access at any time.

Have Multiple Income Sources

If you’re forced out of your primary job, make sure you have some other sources of money. Maybe have a hobby that can earn you some money. Make sure some of your investments pay dividends and enough interest to amount to a significant sum. Take on some freelance work or temp work. The more streams of money you have coming in, the less the loss of the primary job will hurt.

Have A Plan

Many people create a plan for retirement (play golf, travel, etc.) but that plan usually assumes that you reached full retirement age. If retirement comes before you’re ready, what will you do? Will you look for work? Will you work part-time? Where will the money come from? How much will you need? Where will your insurance come from? Will you have to downsize? Ask yourself all the “what if” questions and know the answers. Hopefully you won’t have to invoke the plan, but it’s better to have it.

Develop Skills

You want the kind of work that you can do on your own. You want to be able to freelance or open your own business. This way, if you’re forced out you can go out on your own and keep bringing in money. If you have a job/skill set that requires you to work for someone else, start making the transition before you have to. Learn new skills, go to school if needed, and figure out what you need to do to go out on your own. That way you won’t be scrambling to find something you can do if you’re forced out of your primary job.

No one wants to think that retirement will come before they’re ready, but in todays’ corporate world early/involuntary retirement is a way of life. You really need to have two retirement plans. One that assumes you reach your sixties or seventies, and one that assumes you only make it into your fifties before you have to leave the corporate world. It isn’t safe to wait to save until you’re in your forties or fifties because you could end up with nothing. So plan as if retirement will come earlier than you want, but hope that it doesn’t. Do it right and you may find yourself able to voluntarily retire early, if you want to.

(Photo courtesy of Dan4th)

Money Lessons Learned From Home Construction

December 1, 2011 By Jennifer Derrick 1 Comment

Many years ago I worked in a municipal permits and inspections department. Builders came in and applied for permits, we issued them and then took care of the inspections to make sure that homes and business were being built according to the current building codes. You wouldn’t think there would be too many money lessons to be learned in such a job, but many years later I realized that I’d learned how to build a stable financial life, in part, by watching houses being built.

I’m always frustrated by people who have the magical idea that a stable, successful financial life just somehow “happens.” They seem to think that they deserve to have everything fall into place or that someone or something (like a lottery win) will come along to take care of everything. They get frustrated and angry when the magic fails to happen and blame everything and everyone else. They seem to have missed the fact that, for the vast majority of us, a stable financial life has to be built over time. It’s no different than building a house, really. You don’t just go out and buy an inflatable house, set it on the ground, pull the rip cord and, poof, a house appears. No, you build it starting with the footings and working up to the roof. A stable financial life is no different.

The Footing

In home construction, a footing is concrete that’s poured into the ground upon which the foundation will be built. Without this crucial step, the rest of the house will never be entirely stable and will shift as the soil moves.

In a financial life, the footing is your financial plan. It may take the form of a formal budget or a document generated by an advisor showing where you want to be in ten years. Maybe it’s just a fluid plan you carry around in your head. Whatever form it takes, your plan is what will support everything you do financially. Without a plan and direction for your money, your financial life will never be completely stable because your money will just go in and out without any real control.

The Foundation

A foundation supports the living area of the house. It may not be much to look at, but it’s sturdy and necessary to keep your living space from collapsing.

In a stable financial life, your foundation is your savings. You savings is what will see you through problems like medical bills that insurance won’t pay, expensive car repairs, job losses, and water heaters that go poof in the night. Without savings to support your financial life, you are always at risk of collapse due to every unforeseen emergency. At a minimum you need three to six months of living expenses saved up, but ideally you’d have a year or more. If you have to use some of your savings, you replace it as soon as possible, otherwise your foundation starts to look like Swiss cheese and it’s not as supportive as it once was.

The Framing

Once you’ve got your foundation in place, you start building the actual house. You put up the walls, put in the utilities, and start making it look like something other than a hole in the ground. This process is what makes the house livable.

Financially-speaking, I call this step “building a life.” These are the things that you need to buy/pay for that make your financial house a home. You have to learn how to make sure you can always pay your utilities and your rent/mortgage and buy food. You need to make sure that medical care is covered somehow. You pay all of your obligations and adjust as kids or pets enter and leave the picture. Your framing is all the basics of life that must be taken care of before (and along with) anything else. If you aren’t taking care of your basics, your house is always going to be missing pieces and have trouble standing on its own. It will always be weak and you’ll always be running from room to room fixing problems and patching holes. You also have to make certain that your framing doesn’t get bigger than your foundation and footing. If you’re putting out an amount of money that your budget and savings can’t sustain, your house is going to collapse.

The Roof

Once you have the outer walls up, the roof goes on. A roof protects the house and you against the elements.

In your financial house, adequate insurance, estate plans, powers of attorney, and other legal protections are your roof. These protect you and your assets from expensive problems like injuries, disabilities, and lawsuits. Without them, your lovely financial life will never be completely comfortable. If a cold rain falls in the form of a lawsuit or a career-ending injury, you’re going to feel every bit of it. With your roof in place, you can shelter comfortably through the storms.

Additions and Amenities

Once you’ve got your basic home built, you may decide to add on a room or to build a pool, add some outbuildings, or spring for some nicer features and fixtures. These are all optional and make life easier and maybe more attractive, but they aren’t necessary.

In your financial life, these are the things that come after the basics are under control. Vacations, newer cars, game stations, better furniture, etc. are all things that you may want but are not required. They are the rewards you achieve after your financial life is stable and strong and you have extra money to use for these things.

Very few people do all of these things at one time. They occur over a period of many years and some are going on simultaneously. You may generate your plan and spend a year putting your foundation in place. You may spend another ten years getting your framing in place and then it changes when kids come along. Your roof may come together in pieces as you discover you have additional insurance needs or you get older and require things like long-term care insurance and a will. Regardless of how long it takes to build a stable financial life, it never happens overnight and without a lot of effort on your part.

Too many people go straight for the amenities and additions without even putting in a footing. This is a recipe for disaster and why so many people end up in trouble. If you’re building glorious additions to a house that’s really a shanty, you’re going to quickly overburden your shanty and send it collapsing to the ground. Do things in the proper order, however, and you can have a financial house that stands secure and shelters you from the storms of life.

(Photo courtesy of Armchair Builder)