Now is the Time to Spring Clean your Financial Plan
By Joe Cilley, CFP® Vice President of Financial Planning, Partner, Merit Financial Advisors
Managing finances remains one of the highest day-to-day stressors in adult life, but it doesn’t have to be that way. Spring is a perfect time to get your financial house in order, the same way you would spring clean your house. Whether you are new to financial planning or want to dust off an old plan, there are a few things you can do today to set your future self up for success.
What is a financial plan?
A financial plan is a comprehensive strategy to help you build future goals and wealth. It does so by tracking your income and spending habits, tackling high-interest debt, and optimizing your tax planning to set long- and short-term goals that support retirement, generational wealth building, and emergency preparation.
Financial plans serve broader goals: to protect yourself and your family, help you accumulate more wealth, and create a legacy for future generations. This could include ensuring you have enough emergency cash on hand, understanding your income and expenses, and having the right insurance coverage. Protecting your house oftentimes means keeping up with home improvements or repairs.
It Pays to be Realistic
It can be hard to imagine the future in a realistic way. Instead, think logically about the day-to-day operations of your growing family and a changing economy. Asking yourself and your partner a few key questions can help us latch onto specific ideas as a broader launching point, like:
- “Where will the kids be in school in five years?”
- “Where do we imagine living in ten years?” and,
- “How will we spend our days/weeks when we retire?”
My wife and I like to take this sort of inventory at the end of each year at a retreat away from the house (and the kids). We discuss what has happened with our lives and financial resources and imagine what will happen again next year. While some people like to take stock more frequently, it’s unlikely that the financial plan will change much from quarter to quarter.
Including Your Kids Brings Your Financial Plan to Life
While you don’t need to divulge every detail of your finances to your family, beginning to involve family members at a young age is appropriate. For example, ask children, “How do you imagine us spending our next family vacation?”
Find interesting life moments to make an impact. Young adults entering the workplace can gradually start to see the bigger picture. They’ll likely have questions about their retirement plans and fringe benefits, which will offer an appropriate opening for parents to connect with them. Or, when a new baby is born, you can talk to your kids about the importance of saving for education.
Avoid These Common Mistakes
What is the most significant financial mistake we see being made? I believe there are two. The first is to imagine your life but not your lifestyle. Most of our lives are more predictable than we imagine. When you own a house, it will eventually need a new roof. That cost would constitute an emergency for many, but it shouldn’t be. All houses will need new roofs at some point or another. Allow room, space, and time to imagine the predictable things.
The second is inaction. Time is powerful, and we must use all these available and free resources to our greatest ability. Compound interest called the eighth wonder of the world, requires time to work, further proving that beginning to plan for retirement in your earlier years will pay off in the future. Stop putting off the hard work of estate planning or saving for school, it’s not going to get easier with time. However, there is one simple action to take that will set you up more strategically.
If you struggle to identify your expenses, use a tool to track and monitor where your money is going. If you struggle with saving, set up an automatic withdrawal to your savings account each paycheck. Above all, start with the easy things: identify where you are. Avoid borrowing money for things you consume or that decrease in value over time. And talk to a professional who can help bring your financial plan to life.
Are you looking for support to help you spring-clean your finances? Contact Merit Financial Advisors today for a complimentary consultation.