Out with the old and in with the new. That’s something we often hear and that is true I believe with financial planning these days. Traditional ways of thinking and financial planning seems to have its limitations and societies these days are a bit different already. While basic financial intelligence and practices are still solid, things like cutting debt, living below your means, etc, these are still foundations and not really a financial plan.
Why things are different? Here are some things to ponder about:
1. Living Your Life. Traditional financial planning advice would tell you to work hard, don’t go on vacations, don’t eat out, save everything so you can enjoy it all when you retire. Considering you start working at 20 and retire at 60 years old, its basically saying sacrifice 40 years of your life so you can stop working and enjoy the same stuff when you get to 60.
2. Age. When we get older, we cannot do things as we could have when we were younger. So some of the things you may want to do or experience when you were younger may not be possible at a later time. For example, if you want to go exotic places and climb mountains, go skiing, do sky diving, these are things you cannot put off until you’re 60. Let’s face it, some things in your bucket list could be done later, some can’t.
3. Late Start. Traditional financial planning is all about saving up. This could be true when you are in your early twenties and even feasible when in your early thirties. But when you are nearing retirement age or already in the wrong track in your fifties. This is no longer an option for you. Harsh as it is, time really is money.
4. Financial Advice. Traditional long-term financial planning often involves saving up for life events like a wedding, a vacation, a car, kids, and ultimately retirement. It is also very often that financial planners will tell you or rather scare you into thinking that you need to save up and prepare for these things. While that is true, they often then offer you investment products related to insurance and/or bank investment options. The thing is, they are likely to offer you a product from a company they represent. So unless you get your advice from an independent financial planner that has your interest at heart and has the proper experience and knowledge, be careful.
5. Inflation and Cost of Living. Often the end objective of financial planning is to prepare you for retirement and education expenses for your children. But the old adage of working hard and saving money in the bank is no longer feasible. Interest rates today are a fraction of what they used to be. The bank is only a place where you can safekeep your money but not really earn it. Whatever you save today would have horribly depreciated 40 years from now.
The Modern Day
Today, most people are either working several jobs at the same time or having on-the-side jobs. This is how most people cope up with increasing demands for income. Most couples work simultaneously too. While this grind stresses a person out, it does make ends meet.
However, there is another way and many other options that most working professionals ignore. That is Investing. I believe that hard earned money should be properly invested and that is true financial planning. Make your money work for you. Passive Income. –These are all buzwords most of us has heard at some point in time. Yet, many people shy away because they are afraid that its complicated, afraid that they will lose their hard-earned money, afraid of being scammed, etc.
Truth is, while any investments carry a certain amount of risk, the only sure bet is that by just keeping your money in the savings account of a bank, it will deteriorate horribly in 40 years.
Here are some of the financial grounds I think everyone has to cover in their financial plans.
1. Life Insurance. Everyone will die. That’s one fact about life we can’t avoid but we can prepare for. Having a life insurance is not for yourself but being considerate to your loved ones. Having a life insurance policy would ensure that there would be funds to cover any funeral expenses, debt that you could have left with mortgages, credit cards, business loans, etc. It would also ensure that your family would have a startup capital for either a new business or to whether the months where your spouse looks for a job.
Note that Life Insurance premium cost is based on your age. The earlier you get one, the cheaper it is.
2. High-Yield Deposit Account. These are your regular saving accounts on steroids. While the interest rates are still low, they are often higher than your normal savings but would also require a higher minimum maintaining balance. They usually also have a limit on the number of withdrawals per month. My suggestion is to create this fund to keep your emergency fund. A fund you need quick access to in case of emergencies. You need a fairly reasonable amount set aside, you need to be able to withdraw quickly anytime but do not really expect to touch it often. So instead of regular savings, put it in a high yield account for that extra interest at no cost anyway.
You will still need to keep your normal accounts for ATM and Checking needs but just don’t waste too much balance on them.
3. Credit Cards. Always pay your dues in full. Credit cards often offer you a minimum payment option which can seem ridiculously low but you will end up paying alot more in the long-term because of the interest they carry. Interest expenses you could have saved from spending by not going into debt. This is also often a way credit card companies lull you into a fall sense of security and letting you spend above your means. By paying promptly and in full, you can be sure you are not spending over what you can afford and you save on any unnecessary interest expenses. It usually also is prudent to limit your credit cards to 2-3 cards as you can get savings from debt consolidation.
4. Broaden your Financial Intelligence. Read up and learn on what are your options and what seems to fit your needs and personality the most. There are alot of options and while I cannot cover them all or each one in this article, my objective is to point you in the right direction. Things to look at would be:
- Stocks and Bonds
- Foreign Currency Trading or even simply diversifying your assets to include foreign currency
- Mutual Funds
- Real Estate
That was one of my longest articles I think, while I certainly have alot more I’d like to share, I hope this article has helped you realize your options and expanded your way of thinking about financial planning. At the end of the day, I simply believe that working hard and saving money in the bank is no longer viable. The world has grown more competitive and more complex. This is not to say that proper financial planning cannot be done but there are certainly alot more factors to consider, alot more options to explore, and alot more foresight to be had.
DISCLAIMER: This article is an expression of the author’s opinion. It is not meant as professional financial advice. You are liable for your own decisions. Please research details for yourself or consult a licensed professional. (though be careful who you talk to).