Did you know that this week is the Financial Planning Association’s® 14th annual “Financial Planning Week?” The purpose of the week is to raise awareness of the financial planning process and to enable individuals and families to make prudent financial decisions. You can visit FinancialPlanningDays.org to see if a one-on-one financial planning advice event or educational workshops is being offered in your area. In the spirit of smart financial decision making, here are 10 ways to celebrate Financial Planning Week along with some of our thoughts on how finesse your personal finances:
1) Establish an emergency fund.
Start with at least $1,000 to $2,000 but try to build up to at least 3-6 months’ worth of necessary expenses, depending on how risky your income is. Interest rates are low right now, but keep in mind that this money should be kept somewhere safe and accessible like a savings account or money market fund, not invested in the stock market.
2) Establish a personal spending plan.
If you’re struggling to pay your bills on time, it can be a little difficult to focus on Tip #1. Here are some steps to regain control over your checkbook and free up some money for savings. Budgeting is meant to be empowering not frustrating. (See How to Budget Bust Proof Your Spending Plan.)
3) Make a contribution to your favorite charity.
It’s important to keep the important stuff at the top of that personal spending plan so your money goes to the right places rather than getting to the end of the month with an “oops, where did it all go” feeling. Saving, paying down extra on debt, and giving can be automated through direct payments and deductions. Instead of simply contributing cash, see if you have appreciated stock that you can donate to avoid the capital gains tax on it. Then reinvest the cash that you planned to give.
4) Be a role model for your children and teach them how to save and spend wisely.
Check out these tips about teaching children about money from the personal experience of several of our planners: Michael Smith on “A Dad’s Attempt to Teach a Money Lesson,” Greg Ward on “Raising Kids to Be Financially Healthy,” and “The Top 5 Things to Teach Kids About Money.” But nobody learns from a teacher that just stands up in front of a class and robotically tells people what to do. Take a “show, don’t tell” approach and model good behavior!
5) Start a savings account for a child, a vacation, or a gift for yourself.
Planned spending is a weird concept for some but is a great way to build a habit of saving rather than going into debt. For college expenses, you can contribute to a 529 savings account that can grow tax-free for education expenses. If your child or grandchild is old enough, employ them and deposit their wages into a Roth IRA. As this Forbes post explains, the Roth contributions can be used for any purpose at any time without tax or penalty and the earnings can be used penalty-free for qualified education expenses or penalty and tax free (if the account was open for at least 5 years) for a first-time home purchase (up to $10k) or retirement (after age 59 1/2).
6) Have a formal estate plan: create or revise your will and other estate-planning documents.
Take a look at this basic checklist to see if you have those basic documents that everyone should have. If you’re concerned about probate and want more control over the wealth transfer process, you might want to draft a trust as well. While there are sites like Nolo and LegalZoom to draft these documents on the cheap, you’re better off having a qualified attorney at least look them over in many cases. Also, see if your employer offers access to a free online will preparation service or low-cost estate planning through a prepaid legal service. Ask trusted friends or family for referrals to a good estate planning attorney, or check with organizations like the American Academy of Estate Planning Attorneys, the National Network of Estate Planning Attorneys, or the American College of Trust and Estate Counsel.
7) Eliminate high interest credit card debt.
If the thought of paying continued interest on credit card debt is creating financial stress in your life, create an action plan to eliminate the problem debt as quickly as possible. See Slaying the Three-Headed Debt Monster and Climbing the Debt Mountain for more tips on how to become debt-free as quickly as possible.
8) Tackle student loan debt when the time is right.
Student loans can be pretty scary. But I find that it’s easy to lose sight of other important priorities in our financial lives. As Erik Carter points out in this blog post, make sure that you focus on building up an emergency fund, get the full match in your retirement plan at work, and pay off high-interest credit cards before shifting the focus to paying off student loans. In some cases, it may make sense to invest those extra dollars instead if you have very low interest rates on your loans. Whatever decision is right for your personal plan, there are many apps and resources to help you navigate student loan debt.
9) Create your holiday spending budget as early as possible.
The holidays are right around the corner but it’s not too late to work them into our financial plans. Create your spending plan for the holidays and start saving for your desired spending amount with automatic transfers to a separate holiday savings account. There is nothing more stressful than dealing with your Cousin Eddie’s holiday drama and then having to pay off some higher than expected credit card bills the following month.
10) Plan for year-end tax strategies.
Plan to contribute as much as you can to your employer’s retirement plan and use money in a flexible spending account (FSA) before you lose it. You can also do some tax-loss harvesting on those taxable investment accounts that didn’t fare so well during the market correction. Other tax saving strategies include contributing up to the max in your health savings account and setting aside additional funds in an IRA.
Financial Planning Week may just be getting started, but at Financial Finesse we believe that every single day should be guided by smart financial decisions. Financial planning is truly a lifelong journey that begins with a few simple steps in the right direction. Which ones will you take this week?