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The Raincheck
Our plans change naturally as we grow up, but what about our financial plans? DAME weaves a path through the investment jungle and all those decisions, decisions, decisions...
By Sharon Hall
Published: Dec 01, 2007
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YAHOOLet me guess – you’re in your mid-30s to early-40s, you either have kids or you’re planning to, and you’ve just bought a home with your partner… Or it’s high up on the list. Whichever of the boxes you can tick, it’s high time you recalled the adage “failing to plan is planning to fail.”
Stop me if I sound like your mother but some proverbs may as well have been written for us women. According to demographics: we live longer, earn less and invest more conservatively. And it’s our job to be smart with money. Imagine if men were left to the task. When it comes to the long view, it’s either us or bust. College educations depend on it!
So it’s time for a financial raincheck – to update your goals, both short and long term. But before you leap for the phone in a panic - “Information, get me Charles Schwab! And hurry!” – here are a few pointers to get the cogs whirring.
KIDS
If you're saving for your kids' college education start early and let the power of compounding do all the hard work. Consider the 529 plans – state-operated investment plans that give families a federal tax-free way to save money for college. Check out www.collegesavings.org and www.collegeboard.com.
Also, look into Education IRA’s tax-deferred savings and investment accounts for educational expenses. Parents are allowed to put away $500 a year for each child or grandchild under the age of 18. Check out the Women’s Financial Network at Siebert at www.wfn.com .
RETIREMENT
Relax, no one’s calling you old. Just spare a thought for how much dough you'll need after retirement. People retire earlier and live longer these days, so you may need more than you think. The key questions are: Will your mortgage be paid off by then or after you retire? Will you have to pay for your own health insurance?
If you are already established in your employer's 401(k) or IRA , then bully for you, but even if you’re not, it’s not too late to start. Experts recommend putting 10% of your income towards your retirement, but that’s an average. It really depends on your income and fixed expenses.
YOU
If you’re a bit skittish about investing, you’re not alone (in fact, there are so many of you, a lot of financial institutions specialize in the skittish). First step is to find a financial advisor – look at the National Association of Personal Financial Advisors www.napfa.org.
Here are some basics to get you started:
SET GOALS
Your financial goals may be as simple as saving for a car or as long haul as saving for retirement. Keep three rules in mind when setting goals:
• Be specific. For example, "I want to retire in 20 years with a monthly income of $3,000.”
• Be realistic. It takes time and patience to achieve financial goals.
• Be disciplined. Contributing to a regular savings program is the only way to achieve a secure financial future.
ORGANIZE YOUR FINANCES
1. Take your cash balance plus your expected income for the year.
2. Subtract your estimated savings and investments and annual expenses
3. Now you are left with your cash balance at the end of the year.
4. Next, list of all of your assets (the things you own: home, car, cash on hand, investments, etc.).
5. Subtract your liabilities (i.e., everything you owe, such as your mortgage, credit card balances, loans). This gets you your net worth. If you calculate your net worth annually, you can monitor the growth in your personal wealth.
ALLOCATE YOUR RESOURCES
Once you know how much money you can invest and/or save, you can determine the structure of your portfolio — that is, how much to put into stocks, how much in bonds, and how much should remain in cash. Asset allocation for any investor depends on objectives, risk tolerance and cash needs.
SELECT YOUR INVESTMENTS
Bear in mind that a portfolio structured with a variety of stocks, bonds and cash is most likely to achieve the maximum return with the least risk.
• Stocks. This is the usual route. A share of stock or equity reflects a share of ownership
in a company, a piece of the pie.
• Bonds or "fixed income" investments, which are issued by governments, agencies, municipalities, or corporations. Their overall risk and return depend on the credit worthiness of the issuing institution.
• Mutual Funds pool money from many investors and buy a range of securities on their behalf. It divides the risk, cushions the blows, you could say. And in proportion to their investments, and investors share in the gains and losses.
• Money Market Funds are like mutual funds that invest solely in – ta-da! – money markets (CD's, T-bills, etc.). These funds are designed to pay the owner interest, as well as provide the owner with the ability to sell at anytime.
MONITOR YOUR RESULTS
Financial planning is an ongoing process. Your needs and objectives will change throughout your life. At least twice a year, monitor two aspects: the asset mix and performance of your portfolio.
THE BOTTOM LINE
Understanding investments and establishing a regular investment planning program are essential to successful financial planning for all investors. The best way to achieve your goals is to have a well-thought-out plan that is reviewed regularly by you and your financial advisor.
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