Written by: Corey Janoff
This post was originally published on our previous blog website on August 1, 2018 and has since not been revised and/or updated.
Over the next couple of months, we will be changing up the format of the blog. Each week we will publish a post about financial planning topics that everyone should be aware of and implementing in their lives. Everyone has a different financial situation that requires different levels of implementation. However, we should all have a base level understanding of certain things if we ever want to have a sound financial strategy. We can call this Financial Planning 101.
All the topics covered will be important. The order in which they will be presented is the order I think most people should follow. For example, we will cover Debt Management before Home Buying, because if you carry a balance on a high interest rate credit card, it would be wise to pay the credit card off before buying a house and taking out a large mortgage.
Below are the various topics that will be covered. Most have been discussed in one form or another in this blog, but it never hurts to review important things. For those of you feel like you already have a solid understanding of the basics of personal finance and have a sound financial strategy in place, consider this a good refresher or a way to confirm what you are doing is appropriate.
Insurance Planning
Some things in life are out of your control. Occasionally, they can be devastating and there is no way to prepare for them financially. In those cases, it is prudent to purchase insurance to protect against those risks.
A good question to ask yourself is, “If this event happens, could it potentially ruin me or my family?” If the answer is, “Yes,” then you should purchase insurance to protect against that event. We will touch on the main insurances that most people should have in this segment.
Debt Management
In a perfect world, everyone is debt free. The world isn’t perfect though. Some debts should be avoided completely. Other debts, if utilized wisely, can help you advance towards your financial goals. Ultimately the goal should be to carry no debt one day, so you can be in total control of your finances and not beholden to a creditor.
In this section we will discuss good debts versus bad debts and the most efficient ways to manage your debts and become debt free.
Emergency Reserves
Everyone understands they should have some money set aside for emergencies. How much should you have? Where should you keep that money? Are there any exceptions?
Spending
I don’t like the word “budget.” Spending is more fun than budgeting. We will look at ways to analyze our spending and set spending allowances for certain things. We will also look at ways to determine if you can afford certain things, such as a house, car, job change, etc.
Saving for Retirement
Everyone has different retirement goals and a different vision of what retirement will look like for them. Some people want to quit working completely and do whatever they feel like on any given day. Other people would go nuts if they didn’t work in some capacity, but would like to achieve financial independence so they are only working because they want to, not because they have to. Work takes on a whole new meaning and purpose in those scenarios. Whatever you want retirement to be, we will discuss some retirement saving strategies here.
Investing Principles
A good follow-up to the retirement savings chapter. The first and hardest step is to begin setting aside enough to achieve your goals. Once you get the ball rolling, we need to know some basics of investing so we can maintain the momentum and accelerate towards our goal.
In this section we will cover diversifying your investments by time horizon, tax treatment, and asset allocation. We will also discuss rebalancing portfolios, some different investment vehicles, and the fallacy known as “timing the market.”
Home Buying
It seems like almost everybody I know aspires to be a homeowner one day. Homeownership isn’t for everyone though, so don’t feel pressured to buy a home if you don’t want to. Assuming you do want to buy a house one day (or purchase a new house if you already own), we will cover some basics of home affordability so you don’t end up house poor. The people who struggle the most to reach their financial goals are the ones who have a house payment and home related expenses that are too large for their financial situation.
College Savings
If you have children, you may want to help pay for their college. If not, you can probably skip over this one. We will look at different ways to save for college and how much you should be saving in order to cover different types of schools.
Estate Planning
This is one of the more overlooked components of financial planning. Most people don’t like to think about death and how they want things to unfold after they die. If you have minor children, estate planning is a must. You need to outline in a formal document who will be the guardian of your children and who will handle any assets/money for the benefit of your children. Even if you don’t have kids, estate planning is useful to pre-determine end of life care and pass along your assets to family/friends/charities according to your wishes.
Hiring a Financial Advisor
Some of you may feel capable of handling your finances on your own. Others (most) lack the time or desire to devote the necessary attention and effort to financial matters. For those of you, we will discuss some things to look for in a financial advisor and how to go about selecting one for your situation.
Moving Forward
Buckle your seatbelts as Financial Planning 101 starts next week!
