When you log into your bank account, how do your savings look? Probably not as good as you’d like. It always seems like an uphill battle to build (and keep) a decent amount in savings. But what if your car breaks down, or you have a sudden medical bill?
We’re not judging — we don’t roll like that. We’re here to help. We just don’t want you to have to sell those Elvis-Presley-signed velvet pants you inherited just to pay some lousy plumbing bill. Those pants are sweet. Try these tips to get the ball rolling, and start building up your savings so you can breathe a little easier.
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By: The Penny Hoarder
According to a survey done by Harris Interactive, 99% of the adults agreed that personal finance should be taught in schools. Financial authorities and the American federal government had offered free educational materials online to the public. However, according to a Bank of America poll, 42% of adults were discouraged while 28% of adults thought that personal finance is a difficult subject because of vast amount of information available online.
As of 2015, 17 out of 50 states in the United States requires high school students to study personal finance before graduation. The effectiveness of financial education on general audience is controversial. For example, a study done by Bell, Gorin and Hogarth (2009) stated that those who undergo financial education were more likely to use a formal spending plan.
Financially educated high school students are more likely to have a savings account with regular savings, fewer overdrafts and more likely to pay off their credit card balances. However, another study was done by Cole and Shastry (Harvard Business School, 2009) found that there were no differences in saving behaviours of people in American states with financial literacy mandate enforced and the states without a literacy mandate.
planning how to accumulate enough money for large purchases and life events is what most people consider to be financial planning. Major reasons to accumulate assets include, purchasing a house or car, starting a business, paying for education expenses, and saving for retirement.
Achieving these goals requires projecting what they will cost, and when one needs to withdraw funds. A major risk to the household in achieving their accumulation goal is the rate of price increases over time, or inflation. Using net present value calculators, the financial planner will suggest a combination of asset earmarking and regular savings to be invested in a variety of investments.
In order to overcome the rate of inflation, the investment portfolio has to get a higher rate of return, which typically will subject the portfolio to a number of risks. Managing these portfolio risks is most often accomplished using asset allocation, which seeks to diversify investment risk and opportunity. This asset allocation will prescribe a percentage allocation to be invested in stocks, bonds, cash and alternative investments.
The allocation should also take into consideration the personal risk profile of every investor, since risk attitudes vary from person to person. Real estate can be an expensive venture. A planner must take into account all sorts of costs such as mortgage, maintenance, taxes, utilities, insurance etc. What mortgage plan are you looking at: fixed vs ARM? 15 year vs 30 year? Oh no, a tree just fell on your roof; how are you going to fix it, with your own time and work or with cash to hire a handyman?
Homeowner’s insurance is a must, however, what should be covered can be tricky. Can you get by with just a basic plan covering aspects such as dwelling and loss of use, or, do you require additional coverage such as flood insurance. Own a house? Prepare for property tax. The heat won’t stay on itself, your energy company needs its cut, and the same goes for electricity and water. Keeping all these aspects in mind, it is no question that there are many associated costs with real estate.
Make it a habit to monitor your financial plan regularly. An annual review of your financial planning with a professional keeps you well-positioned, and informed about the required changes, if any, in your needs or life circumstances. You should be well- prepared for all sudden curve balls that life inevitably throws in your way.
Financial position is concerned with understanding the personal resources available by examining net worth and household cash flow. Net worth is a person’s balance sheet, calculated by adding up all assets under that person’s control, minus all liabilities of the household, at one point in time. Household cash flow totals up all the expected sources of income within a year, minus all expected expenses within the same year.
From this analysis, the financial planner can determine to what degree and in what time the personal goals can be accomplished. Having multiple goals is common, including a mix of short- and long-term goals. For example, a long-term goal would be to “retire at age 65 with a personal net worth of $1,000,000,” while a short-term goal would be to “save up for a new computer in the next month.” Setting financial goals helps to direct financial planning. Goal setting is done with an objective to meet specific financial requirements.
The financial plan details how to accomplish the goals. It could include, for example, reducing unnecessary expenses, increasing the employment income, or investing in the stock market. Execution of a financial plan often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, investment advisers, and lawyers…
- Steven Merrell, Financial Planning: Are you sticking it to your heirs?
- Financial planning firm snaps up IFA business
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