6 Quick Tips to Start Planning for Your Financial Future

Planning for your financial future can be complicated due to the large number of moving parts and the uncertainty about what the next few months or years might hold. But even with uncertainty, it’s smart to begin with both a strong foundation and a strategy for working toward your financial goals over time.

In this article, we’ll outline a few quick tips you can follow to jumpstart your financial plans for the future. Keep in mind; however, that the best strategy is often a combination of using your own knowledge and working with a trusted advisor who can help you understand the best strategy for your particular situation.

1. Identify and prioritize your financial goals

You should always start any financial plan for the future with a review of your financial goals. Simply put, financial planning is the practice of charting the fastest and easiest course between your current financial situation and a future where you’ve met all your goals. It’s critical to have a clear vision for where you want to be so you can more accurately build a strategy to get there.

Here are a few examples of financial goals to consider:

• Planning for Retirement — A critical financial goal should be to securing a stable source of income in retirement to pay for your expenses. Often, this means calculating how much money you’ll need to retire and then saving that amount in a tax-advantaged investment account.
• Purchasing a Home — If you want to buy a home in the next few years, make home ownership another one of your goals. Generally, this means saving around 20% of your new home’s purchasing price to avoid paying for private mortgage insurance (PMI).
• Building an Emergency Fund — No matter your financial situation, it’s critical to have a safety net of money to protect yourself from unexpected expenses. Most people choose to save enough money to cover around three to six months of expenses.
• Saving for Your Child’s Education — If you want to get a head start on saving for your child’s education, consider opening a 529 education savings plan with your child as a beneficiary. In doing so, you can contribute funds to the account and invest them in a tax-advantaged nest egg your child can draw from when they pursue higher education in the future.

While this list is far from exhaustive, the key thing to remember is that your saving plans should always match your unique goals. And even if you don’t have everything exactly figured out at the moment, as you start planning for your financial future, it’s always best to have some targets in mind to help you calculate how much you’ll need to save or invest as you work toward your financial goals.

2. Create a budget to stay on track

As you begin planning for your financial future, you’ll likely have several ideas for how, when and where you’ll spend your money. However, it’s smart to plan out exactly where each dollar should go before allocating money into different saving and investing goals. Consider creating a thorough budget that accounts for all your income and breaks your spending and saving goals down into manageable chunks. Commonly, this means following the 50/30/20 rule for dividing up your expenses in a way that promotes smart saving habits.

The 50/30/20 rule states that you should spend 50% of your income on “needs” such as housing and groceries, 30% on “wants” such as entertainment and eating out and 20% on your savings goals such as building out an emergency fund or investing for retirement. After you divide up your income in this way, you can start creating groups of expenses under each of these three categories for your common expenses.

For example, you might allocate $300 to groceries, $100 to entertainment subscriptions and $500 to an individual retirement account (IRA) each month. In doing so, you’ll give every dollar a purpose in your broader financial plan.

This strategy can make it significantly easier for you to hit your saving and investing goals over time by allocating money toward specific goals each month.

3. Regularly review your spending and keep your expenses low

Budgets only work if you stick with them over time.

It’s wise to regularly review your spending to ensure you’re following your budget as closely as possible. From manual expense tracking solutions such as a notebook or spreadsheet to more automated options such as apps, it’s important for you to keep a handle on how much you’re spending in each of your categories over time. Then, over time, expense tracking and reviewing your finances should become a habit that saves you money and keeps you on track for your future savings goals.

For example, it’s common to overspend on certain areas of your budget (such as food or household expenses) without realizing it due to the frequency of purchases you might make on these items per month.

By keeping a tight budget and tracking your expenses regularly, you can make it easier to spot potential problems in your spending before they become an issue that harms your ability to save for your future.

4. Open accounts that further your financial goals

A core part of planning for your financial future is saving money in accounts where it can work most for you. This means saving your money in accounts with the potential to grow in value over time.

For example, if your main goal is to save for retirement, you may want to consider options such as an individual retirement account (IRA) or 401(k). Both options offer a tax-advantaged way to save for retirement while also providing access to compounding returns, which can help your accounts snowball in value over time.

If you save $10,000 in an account with an average return of 6% each year, at the end of the first year you’ll have $10,600. This would be a net gain of $600. At the end of the second year, however, this account would grow in value to $11,236, a net gain of $636. This difference occurs because any interest gained in one of these accounts will also generate interest the following year. Over time, this can lead to a snowballing effect where your savings grow faster and faster as more interest accumulates in the account.

IRAs and 401(k)s are a common and popular way to save for retirement because the benefits of the account types align perfectly with the goal of accumulating and growing wealth over time. Taken in a broader context, this example further shows the effect that account types can have on how you save and invest your money.

Some accounts, such as savings accounts and CDs, are an excellent way to save money for short periods of time due to their inherently low risk of losing value. Others, such as IRAs and 401(k)s, are better suited for growth over time by balancing a higher risk profile with a greater potential for growth.

As you start planning for your financial future, it’s wise to speak to a financial professional who can walk you through the various pros and cons of different account types. By choosing the accounts that best fit your situation, you can give yourself a leg up toward meeting your future financial goals.

5. Make a change if you find yourself off-course

In the event you experience a financial emergency—or just find yourself running low on funds for a necessary purchase—consider making a change and looking at the various credit options available to you.

Credit is an excellent way to gain access to the liquid cash you need today at the cost of paying the full amount back tomorrow (with interest). It’s a great way to tide yourself over if you find your expenses are higher than your budgeted amount in the short term.

As a common example of where this may apply, let’s assume that your car breaks down and you need to spend $3,000 in repairs to get it running.

Paying for the full amount upfront would likely result in a huge hit to your cashflow and savings. In this instance, it may be better to pay for the repairs using a credit card or the equity in your home so you can spread the expense out over several months.

Remember, debt and credit are simply financial tools that you can use to spread payments out over time—helping your monthly cash flow and ensuring you have the funds to make essential purchases.

Note, however, that you should always be careful to not take on more debt than you can handle, as the amount of money you’ll pay in interest will often outpace the benefits of having a stronger cash flow.

6. Choose the right financial partner to jumpstart your savings

It’s important for you to start planning for your financial future as soon as possible to take advantage of the effects of compounding interest and grow your savings over time. Often, this means starting with a list of financial goals you have for the future, and then finding the path that helps you best make progress toward these goals. And remember—you don’t have to go into planning for your financial future alone.

You can speak with an experienced financial professional who can help you determine which strategies and account types are the best for you. Everyone’s situation is different, and the strategies and accounts that work for others may not work as well in your situation.

If you have any questions about the basics of financial planning, investing or saving for your future, don’t hesitate to reach out to your local Associated Bank for assistance. We’re always available online,  over the phone or in-person at your local Associated Bank branch to answer any questions you may have about working toward your financial goals.