Financial Planning
Financial Planning
Planning for your financial future and putting away money for a
rainy day is more important now that it ever was. The term
financial planning can be used to cover a variety of subjects,
everything from retirement planning to buying a home to starting
your own business. Whether you prefer to handle your financial
planning on your own or engage the services of a financial
planning professional, the most important part is making the
decision to get a handle on your finances and take charge of
your financial decisions. Saving up money and building a good
financial base can be very difficult. Most people are lucky to
have anything left over at the end of the month after all the
bills are paid. There is no doubt that putting away a couple of
bucks every month will take some scrimping and determination on
your part, but the power of time and compounding will help those
couple of dollars a month grow into a substantial nest egg over
time. The most basic part of a good financial plan is creating,
and sticking to, a realistic monthly budget. You would be
surprised at the number of people who have never taken the time
to create a simple budget. Without a budget, you may have no
idea where your money is actually going, and consequently no
idea how to save enough money to invest each month. Once you
have created your budget, you may well be able to find ways to
save at least enough money each month to invest in a good mutual
fund. Many mutual funds will allow you to put in as little as
$50 a month. That may not sound like much, but after 20 or 30
years of growth, those $50 monthly payments can grow to a
sizeable investment account. Another good way to invest is to
sock the money away before you even see it. This can make your
financial planning easy and painless because the money just
comes off the top of your paycheck each week. Many employers
offer a 401(k) or 403(b) plan to their employees for retirement.
These plans allow employees to have a specific percentage of
their salary diverted to an investment account to save for
retirement. The first great thing about these plans is that the
money diverted is not taxed, thereby lowering your overall tax
bill. The second great thing about these plans is that most
employers match a percentage of the employee's contribution. And
the third great thing about these plans is the power of
compounding over time. By just leaving that money alone and
adding to it for 30 years, you will be surprised at how fast it
grows into a substantial retirement asset. A good retirement
program should be the cornerstone of your financial planning.
Once you have funded your 401(k) plan or 403(b) plan funded, and
you have created your budget to recover that extra money that
used to slip away, the next step in your financial planning is
to set up an account with a quality, low cost mutual fund. Many
mutual funds will allow you to open an account with as little as
$1,000 and $50 monthly deposits. Even with these relatively
small investments can grow to significant sums over long periods
of time. It is generally best to invest in mutual funds that do
not charge a sales fee, known in the mutual fund industry as a
load. There are no load funds available for virtually every type
of investment, so there should be no need to pay a sales fee and
see some of your hard earned money coming right off the top. You
will want to get a good idea of the long term performance of the
fund you choose, of course. While past performance is not a
predictor of future results, a mutual fund with an excellent
long term track record is likely to continue its good
performance in the future. One of the best ways for the first
time investor to get started is by using an index fund. As
opposed to a managed mutual fund, an index fund simply buys all
the stocks in a particular index, such as the Standard and Poors
500 or the Wilshire 5000. One benefit of these types of funds is
that their annual expenses tend to be very low, since there is
no manager to pay. These funds will perform in line with the
overall index to which they are tied. Whatever vehicles you
choose for your financial planning, the most important thing is
that you are planning for your financial future. Making regular
investments in your mutual funds and retirement plan will pay
big dividends down the road. Getting started is the hardest
part. Once you have your financial plan in place, you will
wonder how you ever lived without it.