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February 19, 2015

Planning for Financial Life Stages


financial life stagesIt is important to plan for each of financial life stages. Beginning the financial planning process early can help to ensure that you will be financially secure at retirement and have the ability to pass on wealth to future generations. Use the financial life stages guideline below to ensure you’re on track during every phase of your financial life in NYC.

Stage One: Your First Real Job

Many people hold jobs during high school and college in order to have spending money. However, they aren’t required to be fiscally responsible. This changes once a person is out on their own working their first real job. Individuals in this phase of their life likely feel broke. They’re paying bills for the first time and are responsible for providing for themselves.

During the first of your financial life stages it is important to:

  • Create a budget: For many people, this is the first time they’ll have real money of their own. It can be tempting to overspend as a way to treat yourself.  Be careful. Create a budget that outlines your income and expenses. Once you’ve allocated funds for necessities such as rent, utilities and groceries, then you can determine how much you’re able to spend on non-essential items each month.
  • Start saving: Getting into the habit of saving early provides the best avenue for accumulating wealth. You should be saving for both your long-term and short-term goals. Enroll in your company’s 401k plan, if offered, and be sure to contribute enough to get the maximum company match – this is free money! You do not need to put away huge sums of money. By making small contributions over a longer period of time, you will accumulate the wealth you need to be secure in retirement. Setting up an automatic savings plan is an easy way to accumulate funds for short-term goals – including establishing an emergency plan.
  • Get insurance: Having adequate insurance coverage is important for all of the financial life stages. Renters’ insurance is affordable and protects your belongs in the event of a catastrophe.

Stage Two: Getting Married

Disputes over money is one of the most common newlywed arguments. Prior to getting married, it is important to speak with your future spouse about your financial outlook and plans. Now is the time to discuss how finances will be handled, who will pay the bills and what your financial goals are. With two different people, even two people who are deeply in love, there will likely be a difference in financial opinion. Openly discussing your views about money can save stress down the line.

During the second of your financial life stages it is important to:

  • Create a joint budget: Budgeting is even more important for couples than for single individuals. Both spouses should be a part of the financial planning process and deciding how and where money will be spent.
  • Decide financial goals: Sit down as a couple to outline your financial goals for the future. Do you want to save a down payment for a home? Is taking a European vacation in the future? Determine what items are important and how much those goals will cost. Then, decide how you will save to achieve those goals.
  • Review insurance needs: In addition to insuring your NYC property, look into life insurance that would provide for the other spouse in the event of disaster. Other insurance needs include disability and long-term care insurance.
  • Tax planning: If your new household has two income earners, take time to understand your potential tax implications. You may need to adjust your withholding to avoid a large tax bill.

Stage Three: Buying a Home

Your primary residence is likely the largest purchase you will ever make. Therefore, it is important to be fully informed about the home buying process.

During the third of your financial life stages:

  • Know your credit: Credit is the largest factor in your ability to obtain a mortgage. Before beginning the mortgage application process, check your credit reports from all three bureaus and dispute any inaccuracies.
  • Understand mortgage types: Depending on your needs, there are a variety of mortgage loans available.  Know the difference between fixed and adjustable rate mortgages before making a selection.
  • Choose Wisely: You are likely to live in your first home for several years.  Therefore, it is a good idea to purchase a home that is good for both now and who you think you’ll be in a few years. If you plan to have children, this includes evaluating the school district.
  • Practice: If your new mortgage payment is expected to be higher than your current rent payment, take a few months to put aside the additional funds in a savings account that you leave untouched. This step provides a real world view on how the higher payment will affect your budget and standard of living.

Stage Four: Starting a Family

Children are wonderful additions to your life that can cause several changes to your financial plan. There are a number of things to consider when starting a family:

  • Address your budget: While raising children doesn’t have to break the bank, it certainly can change your budget.  Think about how much you will need to spend in order to get ready for a baby and determine a plan. If one spouse will stay home with the baby, make sure to understand how moving to one income will alter your situation. If both spouses will continue to work, take the time to understand the cost of child care in your area.
  • Additional savings: If you believe college is in your children’s future, and plan to contribute, start considering how you will pay for college. 529 plans provide an excellent way to grow wealth without taxation.
  • Review insurance: Review your property and life insurance to make sure your coverage is sufficient for the needs of your growing family.

Stage Five: Retirement

The fifth of your financial life stages is retirement. If you’re in a good place financially, it is because of your diligence to following your financial life plan.  However, you still need to keep the following items in mind:

  • Budget: Budgeting continues to be an important function to protect your financial status. Be sure to live within your needs. Overspending can quickly dwindle your life savings.
  • Estate planning: Although some individuals find the subject unsettling, it is important to understand what you want to happen to your assets once you pass on. Failing to document and plan for your estate can result in heavy taxation which will decrease the value of your estate.

For assistance during any of the financial life stages, contact a certified financial planner today.

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