Can you project your future net worth? Do you know how much you’ll need to retire? How about how far along you are toward that long-term financial goal?
If you answered “No” to these questions, you’re risking your financial future.
It’s difficult to think far enough ahead to prioritize your prospective lifestyle and the future of your finances. We’re naturally biased toward the present, but the ability to plan for your financial future and accurately estimate how much money you’ll need is critical.
Where do you even begin?
Are You Choosing To Save?
The choice is yours: Slightly adjust your spending habits today to cultivate your future net worth or continue to spend for the present. If you choose the latter, don’t count on retiring at 65 or having flexibility during retirement. Fine-tuning your lifestyle today establishes far greater flexibility tomorrow.
Are You Starting Early Enough?
Planning on saving for retirement is like starting your engine – you have to put your foot on the gas to get to your destination. The sooner you start saving, the easier it is to reach your financial goals without stress. Even if the amount you’re saving seems trivial, this figure grows exponentially from the effect of compounding interest.
Do You Have A Plan?
Even if you have an accurate estimate of how much money you’ll need in retirement and what your future net worth must be to accommodate it, the bigger issue is developing a plan and executing it.
Many people say, “I’m going to save whatever is left over at the end of the month.” But at month end, little (if any) remains for retirement savings. Instead, choose to save a certain amount of money each month and have the amount withdrawn automatically. This forces you to adjust your spending habits and stick to a plan.
Are You Leveraging Financial Planning?
So, how do you come up with a plan? Financial planning is one of the great benefits of partnering with a financial advisor. With an advisor, you’re able to better identify a realistic retirement age and estimate what your future net worth must be at that time. With all of your goals on the table, prioritize what’s most important, calculate how much you need to fund your retirement and develop a plan to allocate your income to these investment accounts.
Are You Considering All Pertinent Factors?
It was once the norm to calculate your required future net worth under the premise that you’d live into your 80s. However, people are living longer these days. Financial advisors and planners are using life expectancies around 100 years old or greater in their calculations.
Why would professionals use such a high expectancy? You’re not guaranteed to live so long, but erring on the side of caution and planning to have enough to live at such an age is far better than the alternative. Of course, family genetics, your health and other factors contribute to a more accurate estimate, but you must be prepared for the possibility of living well past age 80.
How Often Are You Reevaluating Your Goals?
Life tends to change our plans on a consistent basis. You need to reevaluate your financial situation on an annual basis and adjust your goals or plan accordingly. People often fail to update their wills, short- and long-term financial goals and financial plans despite changes in their lives. By evaluating your financial situation yearly, you establish better control of your future and are able to adjust your investments and keep on track toward your desired future net worth and goals.
Without a dedicated plan that you evaluate on a consistent basis, you open yourself up to unnecessary risks. Take control of your investments and make your future a priority.
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