Financial planning for the unpredictable road of life

By Gina Gallagher | Citizens Contributor

Marriage. Children. A new home. College. Retirement. We all have certain goals and paths we expect to take in our lives. The challenge is not just in meeting these goals, but managing the unexpected life changes and expenses that can sometimes get in our way. Whether it involves divorce, disability, or the loss of a job, there’s no way to predict your individual path on the road of life. You can, however, take one important step to guide you through it — plan.

The benefits of saving and financial planning

So how can you build wealth over the long term and still prepare for life changes in the short term? The answer lies in building good saving habits and having a solid financial plan.

In a recent survey by the Federal Reserve, 4 of 10 Americans would not have the savings on hand to cover a $400 expense. That’s why one of the most important steps in financial planning is making saving a priority. You can prioritize your savings goals, such as building an emergency fund for unexpected expenses, a college fund, and retirement. Then, you can automate your savings through recurring withdrawals from your checking account.

Your savings plan works in conjunction with your financial plan, which acts like a roadmap to help you determine where you are in your life, where you want to go, and how you can get there.

Major life events that require sound financial planning

As your life changes and progresses, your financial needs will also evolve. Here are some examples of different life events and how financial planning can help you be ready for them:

Marriage. The combining of households and finances can be complicated, especially for those who enter marriage with children or substantial assets. Sound planning can help you determine your financial goals, such as starting a family, purchasing a home, and planning for retirement. Your financial plan should include a review of your joint savings, insurance coverage, and investment preferences, such as risk tolerance.

Job promotions. We’ve all heard the adage “Pay yourself first” when you receive a small cost-of-living raise that may not have a major impact on your life. However, a promotion and significant pay raise can provide an ideal opportunity for you to not only increase saving for retirement, but also saving for your other goals.

Children. Children can make life exciting, fulfilling, and, of course, more expensive. You can, however, plan for some of those expenses. For example, you can begin saving for future college expenses with a 529 plan. You can also develop an estate plan, which will include a Last Will and Testament and life insurance to ensure protection for your loved ones.

New home. With the high cost of housing today, down payments can be substantial. Having a down payment of 20% or more can make qualifying for a mortgage easier, help you avoid private mortgage insurance, and reduce monthly payments. The saving vehicle you select will depend on your timeframe. For example, if you expect to purchase a home in the short term, you’ll likely want to save in a high-yield money market. If you have a longer time frame and are willing to take on additional risk, you could consider investing in the stock market.

New business. If you’re thinking of starting or purchasing a business, you’ll require capital. Most entrepreneurs use their own assets to fund a business venture. That’s why it’s essential to have the right business structure to protect personal assets, such as your home. For example, establishing a limited liability corporation (LLC) could help protect your personal finances and minimize taxes. Another way to minimize the impact of taxes is to take advantage of retirement plans, such as individual 401(k)s and Simplified Employee Pension Plans (SEPs).

Inheritance. An inheritance is a major life event that requires sound planning. A good financial plan can help you maximize and protect transgenerational wealth that you may receive or want to share with your heirs.

Health care. An illness or disability can have a devastating financial impact on you and your loved ones. Having disability insurance as part of your financial plan can help provide funding to meet living expenses in the event you’re unable to work. Financial planning can also help you manage medical expenses in retirement, including navigating Medicare, managing tax issues, and evaluating long-term care insurance.

Retirement. While it’s important to make retirement saving a commitment, it shouldn’t be your only saving priority. In fact, many people tend to over save for retirement and under save for other things. You never want to mortgage your present for your future. Retirement saving is really about determining what will make you satisfied and prioritizing your goals.

The benefit of time and planning

The ultimate asset for saving and meeting life’s goals is time, at least initially. The earlier you can start to save, the better, though as you draw closer to your goal, your investment strategy should take over. For example, as you near retirement, it will be important to review your asset allocation to ensure your focus is more on the preservation of assets.

Be ready for life. Start planning today.

Having a financial plan and a strong commitment to saving can help you manage the expected and unexpected changes you may discover on the road of life today — and in the future.

A Citizens Wealth Management Advisor can help you build a long-term investment strategy with your goals in mind. Fill out this simple form to request a call back from an advisor so you can start planning for your goals.