The Financial Decisions to Get Right at Every Stage and Age

Financial Decisions

This week, your Money Guys were joined on the show by special guest Alan Moore to discuss the various financial decisions that everyone needs to make at different stages and ages of their lives.

Alan is the co-founder of the XY Planning Network, the leading organization of fee-only financial advisors that specialize in working with Gen X & Gen Y clients. He’s also the President of Serenity Financial Consulting, a fee-only RIA and location independent financial planning firm. He currently lives in Bozeman, MT so that he can hit the slopes on powder days.

In this episode, Alan, Bo, and Brian each walk through some pitfalls to avoid, blind spots to be aware of, and solutions you can implement with your personal finances.

Money Matters to Think about When You’re in Your Teens and 20s

Alan takes on what younger generations should watch out for and think about. For those in their teens and 20s, he says to take your financial decisions seriously.

This decade isn’t a “throwaway,” and it’s never too early to think about developing financial independence and investing in your future. The decisions you make now do matter. Alan also has a few suggestions for people who are just starting out:

  • There are a lot of big things and changes happening right now — but don’t forget about the little things. Don’t let small mistakes trip you up and hinder your financial progress!
  • Invest in financial assets.. and your own skills, knowledge, and abilities.
  • Don’t be afraid to ask for what you want — but understand you’ll need to do your homework before you do. Don’t plan on getting what you ask for if you don’t put in the work first.

Keeping on the Right Financial Track in Your 30s and 40s

Bo picked up after Alan to help those at a little later stage in life — those who are in their 30s and 40s.

If you’re in this age group, you’re still young! But you’re not “entry-level” anymore, and it’s likely that this stage is bringing new experiences and life changes to you.

Bo brings up some common pitfalls that people in their 30s and 40s need to watch out for, including issues with your investment portfolios, spending temptation and lifestyle inflation, and simply forgetting to re-check your financial to-do list after you go through some big life milestones.

Finishing Strong with Your Financial Decisions After 40

Brian then addresses the over-40 group and the financial decisions they need to think about and the blind spots to be aware of.

The biggest issue? Time flips on you, and it’s no longer an advantage but a liability. That doesn’t mean it’s too late to take action, but it does underline the fact that you do need to jump on your financial goals if you haven’t gotten serious yet.

Remember, “someday” is not a day of the week. Think about these things, and if you need to take action on anything, do it today:

  • Understand your risk capacity. Even if you still feel comfy with risk, you may not realistically be able to handle swinging for the financial fences anymore.
  • Organize and tighten up your finances. Don’t get sloppy, and don’t abandon a plan of action at the finish line!
  • As much as you don’t want to think about it, you need to understand your mortality. Even if you feel young mentally, you can’t pretend you’re not aging at all. (Sorry.)

No matter what your stage or age, there are financial decisions to think about — and to get right. It’s never too early (or too late!) to take smart action and improve your financial situation.

So no matter what group you fall into, keep up the good work in avoiding pitfalls and making the right money moves.

Want help with this? You can always reach out to financial pros to help get you on the right track. You can also email your Money Guys at brian@money-guy.com and bo@money-guy.com — and you can email our special guest, Alan Moore, at alan@xyplanningnetwork.com.

 

We appreciate all our listeners and members of Tightwad Nation — and you can show your appreciation for The Money-Guy Show by leaving us a review on iTunes. You can either go directly through iTunes or leave a review with this link. These reviews help new folks find the show.

How to Prioritize Financial Goals

Here's how to prioritize your financial goals

The guys got a great listener question a few months ago — from a husband and wife team who listen to the podcast together! — and are taking it on for this episode.

The question: how much should you save and invest if you have debt?

This is a good one to cover, because it’s difficult for most people to get through life without taking on any debt at all. Most of us don’t have over a hundred thousand dollars lying around in cash to put down on a home, or that same amount again to pay for higher education costs.

So we take out mortgages and student loans. (Or we just don’t yet have good money management habits and end up overspending on the credit card.)

Whether it’s good debt or bad debt, chances are you’ve had a little bit of it — which means you’ve had to juggle multiple financial goals, too.

We need to save and invest wisely for retirement, establish an emergency fund, repay debts (be it consumer credit card debt or a car loan or a mortgage),and more.

The Basics of How to Prioritize Financial Goals

Brian and Bo go over some of the basics that we can all abide by when it comes to prioritizing financial goals:

  • Pay yourself first: That means taking care of your retirement needs first. You need to be able to take care of yourself financially (now and in the future), so this should almost always be at the top of your priority list.
  • Have an emergency fund: Again, this goes back to taking care of yourself. That emergency fund will help safeguard you against unexpected expenses that could push you into debt.
  • Get rid of debt: Once you’ve secured your savings, it’s time to look at aggressively paying down any debts you may have.

The exception to this order? When you have high-interest rate debt. Usually associated with credit cards, debts with interest rates over 8% or so are your financial emergency, and need to be addressed immediately. That doesn’t mean sacrifice savings entirely — but it does mean making room in your budget to pay down debt.

Ideally, you’ll be saving 15% to 20% of your gross income for your retirement. But that may change depending on your debt situation. Again, it all depends on that interest rate.

Avoiding Money Wasters

Prioritizing your goals will get a lot easier if you can avoid some financial pitfalls that many Americans succumb to. The guys took a look at a list republished by J. Money at Budgets Are Sexy to see what average people wasted the most money on.

One of the biggies was no surprise: credit card debt. This is a huge waste of your hard-earned money and a great reminder of the importance to live within your means and avoid spending more than you can truly afford.

Others that Brian and Bo point out are deal websites (with a great quote from another financial blogger, Frugalwoods) and fees (along with a tip on getting out of them from time to time).

Knowing When to Go Pro

Hiring a professional financial planner could possibly be the key that unlocks the door to your financial success.  At the same time, choosing the right advisor to work with is an important decision that can often seem overwhelming.  In today’s show, we discuss the services that planners will and will not provide as well as key things to look for when hiring a pro.

In the March edition of MoneyAdviser, Consumer Reports outlined what typical fee-only planners will and won’t do for their clients:

What they will do:

  • Help you figure your net worth:  Typically, a planner will have the client gather the necessary data and then create a statement to uncover other planning opportunities, such as insurance analysis or estate planning.  (Do-it-yourself tip:  Collect current statements for all assets and liabilities and use an online net worth calculator, such as Mint or Yodlee, to determine your net worth each year.)
  • Advise you on 401(k) investments:  Your planner should be looking at all the pieces of your financial puzzle, including your 401(k) to ensure that your saving and investing goals line up across the board.  (Do-it-yourself tip:  See if your 401(k) plan sponsor offers access to investment guidance or check out the online retirement-planning program, Financial Engines, for additional support.)
  • Help you invest a lump sum:  A planner should be able to offer tax-efficient investment advice to their clients, as this is a core activity of financial planning.  (Do-it-yourself tip:  Use Morningstar software to research mutual funds and stocks for your portfolio.  Also, check out Bo’s Money-Minute about investing in a lump sum vs. dollar cost averaging.)
  • Determine if you’re properly insured:  Your planner should be able to evaluate your insurance needs, as well as refer you to an agent that can provide the coverage.  (Do-it-yourself tip:  Do as much research as possible and shop around for the best rates.)
  • Assess if you’ve got enough to retire:  A planner can determine whether you are on track for retirement or if you need to explore other options, such as working longer or changing your lifestyle.  (Do-it-yourself tip:  Assess your potential income sources, including Social Security, and use an online tool to calculate where you stand.  Consumer Reports recommends T. Rowe Price’s Retirement Income Calculator and Analyze Now’s Free Retirement Planner.)
  • Coordinate your retirement income:  Planners can determine the best method for drawing funds from your various retirement accounts, while considering tax consequences.  (Do-it-yourself tip:  Consumer Reports advises that unless your retirements consists entirely of Social Security and a pension, you might want to consult a professional on this one.)
  • Help you plan for college funding:  A planner can guide you on the best ways to finance your child’s education.  (Do-it-yourself tip:  Visit www.collegeboard.com, www.savingforcollege.com, and www.finaid.com for additional resources.)

What they won’t do:

  • Help you pay down debt:  As a general rule, fee-only financial planners refer such clients to a debt counselor or a bankruptcy attorney.  (Do-it-yourself tip:  Contact the National Foundation for Credit Counseling if you need help with debt.)

The gray area:

  • Help you control your spending:  While many planners recommend following a budget, it’s not cost effective for you or the planner to spend hours together developing a detailed budget.  Most planners are interested in overall cash flow and will recommend cutting back if needed.  (Do-it-yourself tip:  Create a spreadsheet or utilize budgeting software like Quicken, Yodlee, or Mint.)
  • Create an estate plan for you:  Planners can help you decide the structure and tax efficiency of your estate, but an estate-planning attorney will be needed to draw up wills, trusts, and end-of-life documents.  (Do-it-yourself tip:  Contact an attorney to prepare or review your documents.)

If you decide that hiring a financial planning professional would be beneficial for you, the following credentials should stand out to you:

  • Certified Financial Planner (CFP):  holder has passed a 10-hour exam, has at least three years’ financial planning experience, and has completed an approved course of study.
  • Chartered Financial Consultant (ChFC):  requires eight college-level courses in financial planning and 30 hours of continuing education every two years.
  • Certified Public Accountant/Personal Financial Specialist (CPA/PFS):  CPA with specialized training in personal finance.
  • NAPFA – Registered Advisors:  holder meets strict education and professional requirements for membership in the National Association of Personal Financial Advisors, for fee-only planners.
  • Chartered Financial Analyst (CFA):  holder completes a series of three six hour exams and has four years of qualified work experience.

Hopefully this information will be helpful if you are considering hiring a professional to guide your finances.  Check us out on Facebook, YouTube, and please leave any questions or comments below!

 

Links to other things mentioned in today’s show:

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