Financial planning is one of those topics that leads to a condition known as MEGO. That stands for “my eyes glaze over.”
After all, who wants to worry much about spending wisely and saving? We work hard, bring home a check, and that’s enough, right?
Unfortunately, that’s getting by. To prosper, you need to make sure you set aside money every time you cash that check. Those savings can be for a variety of needs, but saving nothing is not an option.
How to get started? It’s not hard if you set a few simple, realistic goals:
1. Decide how much. It might seem elementary, but many people save only when they have windfalls here and there. A real savings plan targets a monthly and an annual goal and goes about making sure that the required amounts are set aside. It might be 5%, 10% or more, but you have to set a goal.
2. Count on problems. It’s a fact of life: Things happen. The roof leaks, the car breaks down, kids need braces. It’s a very good practice to set aside a number of months’ salary as a cash cushion. If you have to dip into that money to finance a short-term issue, go right ahead. Then build it back up again, pronto.
3. Lower your risks. Mostly likely, you are required by law to have car insurance. Your lender will make you buy homeowners insurance. And you should consider what would happen if the breadwinner in your family were suddenly gone or unable to work. If the answer is “chaos,” talk to an insurance agent. He or she can figure out a reasonable premium that will help you sleep better at night.
4. Pay yourself first. How does retirement happen? On automatic pilot, the research shows. If you have access to a 401k at work, talk to your human resources professional about automatic deductions into that account (tax break!). If you don’t, most employers can set up a automatic, second check with the amount you request, to be sent to a savings account.
5. Celebrate success. Meet your annual goal? Great, take a weekend trip. Got your cash cushion in place? Excellent, maybe buy some shoes or a new cellphone. Saving for retirement is not about denying yourself. It’s about putting your future — your own retirement — in the proper perspective. If you have money growing in a savings or retirement account, an occasional splurge will not make you feel guilty at all.
Financial planning is more complicated than this simple checklist implies. But if you can get these basics under way, then the more complex goals will take on their proper weight and be far less taxing to accomplish when the time comes to achieve them, too.