Are you afraid you need a financial advisor for some of the more routine financial matters? Well, it is true a good fee-only financial planner is worth the expense and can save you a lot of heartaches. There are some words of wisdom that I can give you that almost all financial planners would agree on no matter what your situation is and where you are at in your financial journey. But I really do believe a good fee-only financial planner can save you a lot of sleepless nights no matter what, so you may want to consider that if you get nothing else from this post.
My first bit of advice is not always to think that cash is better than using credit in all situations. Yes, by using cash you will avoid possible interest charges that accompany the use of credit cards if you do not pay them off in their entirety each month. That is the key to using credit in an intelligent manner instead of in a reckless one that will do nothing but cost you in the end. By using a credit card and keeping it active, you will establish a credit use record that could help your credit score in the long run. So instead of canceling that old credit card you got in college use it from time to time paying it off each month and keep it active. A portion of your credit score is the age of your accounts, so here older is better. Also, by keeping the account open, you will have a higher borrowing ability and provided you keep your debt low you will also increase that portion of your credit score as well.
Another thing that I advocate is the establishment of an emergency fund. Yes, it is extremely important to have a well-funded emergency fund in case of an emergency. And yes there are always emergencies from time to time no matter how well you plan things. I recommend at least six months’ worth of expenses saved in an account that is separate from your regular accounts but one that is still extremely liquid meaning it is not invested in the markets. This fund’s purpose is to fund emergencies, not high returns. Put the money in a savings account and it will earn a minimal rate of return but will be accessible in the event you need the money in a hurry. It is sad, but it is estimated that two-thirds of Americans would not be able to even cover a $1,000 emergency if it were to arise. Save at least a little from each paycheck until you have accumulated enough to cover six months’ worth of expenses.
I am also a firm believer that everyone needs to be saving for retirement. And that cannot be started early enough in my opinion as well. The earlier you start saving for retirement, the more you will have when it is time to retire and the better your golden years will be. Recently I wrote a post explaining the importance of starting as young as you can for your retirement and it is shocking when you actually run the numbers. If you need proof, go back and read that post titled “Save Early and Often.” And if your employer offers a match on your 401(k) always take advantage of that and at least save what the company will match. Otherwise, you are giving away free money.
If you plan on having kids, or already have them, save for your retirement before you pay for your children’s education. It would be nice to be able to pay for our children’s higher education, but the reality is we need to be saving for retirement first. Our kids can work part-time to help pay for college, apply for as many scholarships as possible or take out student loans. It is better for your children to take out loans and pay for their own education rather than you not saving for your retirement. Your children will have 40 years to work to pay back the loans and save for their own retirement. There will be no one to help you in retirement if you are not helping yourself now.
It is also extremely important that you are open about your finances with your significant other. There is nothing worse than finding out that your spouse if you are married or fiancée if you are engaged, has huge amounts of debt. It happens all the time, and people need to be upfront about these things if they want to have a happy and long relationship with someone. It may not be pleasant, but it needs to be done.
And finally, many people are overspending on their housing. And no I am not just talking to those people who are buying but also those who are renting. Your housing expenses should not be more than about 30% of your take home pay each month. For those buying this means your mortgage, insurance, taxes and any other payments such as Private Mortgage Insurance if you put down less than 20% of your home’s value. And do not forget maintenance costs of owning your residence either as those are part of home ownership. If you are renting, you need to ensure your rent is less than 30% of your take-home pay as well. Some people like to figure their utilities in this as well, and it is fine if you do, but those are expenses that you have a little discretion over and how much they will be each month. Not everyone keeps their houses at the same temperature and depending on where you live seasonal expenses will vary a great deal from season to season.
This is just some ideas of what to think of when you are thinking of your finances. If you are on top of these items, chances are you are in pretty good financial shape, but a good fee-only financial advisor is always money well spent.
If you have any questions or need additional information, feel free to contact me directly or leave a comment here.
