Financial Planning For Do-It-Yourselfers

Financial planning can be an overwhelming topic. Like health insurance or getting a mortgage, people tend to stumble out of the gate.

If you are intent on doing it yourself, rest assured that it’s possible to get your plan under way and successful in about an afternoon — if you first make some basic decisions.

1. Decide to save

This is the No. 1 retirement killer. People save too little and begin entirely too late. You should save 10% of your gross income to start and build it up from there, right from your first job.

There will be plenty of priorities fighting for your money. Spending on family, travel, housing and the like. None of it matters more than building a savings account and letting it compound over time into enough to retire.

2. Decide to invest

Investors, especially beginners, can fall into the trap of waiting until they have “enough” to start buying actual investments. So, they put it off. Then the markets seem touchy or there’s a lot of stressful economic news, so they put it off again.

Before long, 10 years has gotten past you and you’ve missed the chance to use that decade to gain a return on your savings. Even if it’s $50, put it into an inexpensive, balanced index fund and keep adding. Never miss a chance to invest early and consistently.

3. Decide to protect

One of the biggest stumbling blocks in your financial plan will be inadequate insurance. It helps to remember that the point of insurance is to transfer risk. If you die tomorrow in a tragic car crash, who suffers financially?  How much? That should help decide whether and how much life insurance to own.

Term life is good enough for most people. Consider long-term care, disability, home and auto coverage and perhaps umbrella coverage if you have teenage drivers at home.

4. Decide to spend wisely

Don’t be penny wise and pound foolish. What does that mean? Well, often we get very caught up on small things, like clipping coupons for restaurant deals. But then we lose sight of the bigger problem, like eating out three times a week! It doesn’t matter that you got a 10% discount if you overspend your budget by 200%.

Likewise, we often put small purchases on credit cards and find ourselves unable to pay it down within the month. If you can’t manage your day-to-day spending, cut up the cards and use cash or a bank debit card. Better yet, save money automatically at work using a 401k plan or other deduction system. Then you can spend what’s left over without worry.

5. Decide to retire

This is a big one. Too many people simply have no long-term goal regarding retirement. They plan to work till they drop.

Pick an age, decide how much you need to retire at that age and then make sure you set aside enough to make it come true. It’s that simple.