10 Do’s and Don’ts of Financial Planning

Learn what you should and shouldn't do when financial planning.

financial planning

People often feel that they’re not making progress on their financial goals. There’s an easy fix for that. Create a financial plan and stick to it.

A recent Gallup poll found that just 38 percent of U.S. investors have a written financial plan, which guides their saving, investment and retirement goals. Maybe that’s why more people are scared of going broke than they are of dying.

Conquer those fears by putting a financial plan into action today. Start by gathering information about your current financial situation: What are you spending your money on, how much have you saved and what’s your debt amount?

“Look over your statements for the last couple of months to see what your income typically is and how much you have left over each month,” said Kyle O’Dell, financial advisor and managing partner at O’Dell, Winkfield, Roseman & Shipp.

Now use that information to make a plan that works for you. Follow these tips to get started:

1. Do Set Money Goals

It’s tough to make a plan without knowing what you’re saving for. Be as specific as possible with your goals, from short-term objectives like taking a family vacation to long-term dreams like when and where you want to retire.

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2. Don’t Put Wants Ahead of Needs

Separate out what you need versus want, and make sure that you’re prioritizing those needs. If your retirement fund is falling short, like two-thirds of Americans say theirs are, then scaling back or eliminating those family vacations might be wise to reach your retirement goal.

“Tracking your expenses will help you get a sense of where you’re leaking money,” said Wilson Moy, director of financial planning at AAFMAA Wealth Management & Trust. “When you see how everything adds up, then you can decide, ‘OK, I’m going to make coffee at home,’ or ‘I’m going to pack my lunch once a week.'”

3. Do Be Credit Savvy

Having good credit can save you money on everything from your mortgage interest rate to your car insurance. Paying your bills on time and lowering your debt will boost your score. Know your creditworthiness. Get a free report at AnnualCreditReport.com. Look for errors that could be lowering your score.

4. Don’t Leave Money on the Table

Not taking advantage of your employer’s full contribution to your 401(k) match is like not cashing some of your paycheck. Employers typically match about 3 percent of your salary. That’s still not enough to set you up for a comfortable retirement, but at least it’s a start.

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Increase your contribution by 1 percent each year. Time it to coincide with your annual raise. Ultimately, you should aim for maxing out your 401(k) and saving at least 15 percent of your income annually for your golden years.

5. Do Have a Rainy Day Fund

Having an emergency fund will allow you to keep your financial plan on track if an unexpected expense like a car repair or medical debt crops up. Building an emergency fund was Americans’ number one short-term savings goal for this year, according to a GOBankingRates survey.

Depending on your situation, your emergency fund should contain three to six months’ worth of expenses — more if you feel insecure about your job or have dependents.

6. Don’t Get Emotional About Your Investments

When the markets are as volatile as they’ve been in recent weeks, it can be tempting to make big financial moves and get out of the market. Doing so would be a mistake.

“If you miss just a few of the best days in the market, your returns will be substantially lower,” said David Holland, author of “Confessions of a Financial Planner: Secrets to a Secure Retirement and How to Get Great Advice and Avoid Financial Scams.”

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Use an online asset allocation calculator to determine your risk profile and get a sense of how much of your portfolio should be in stocks, bonds or other investments. Once you’ve decided on an allocation, stick with it. You can rebalance once or twice a year, but don’t make rash calls based on the news.

7. Do Manage Risk With Insurance

First, make sure you’re properly covered and not overpaying for home and auto insurance. Then evaluate your health insurance plan to see whether it’s the best current option for your family’s health needs and finances.

There are other types of insurance you’ll want to consider as well. If your family relies heavily on your income, you might need both death and disability insurance — there’s a 25 percent chance that workers will become disabled at some point in their working career, according to the Council for Disability Awareness.

Keep Reading: How Do I Reach My Retirement Goal?

Life insurance is also a must for those with a family that relies on their income. While your employer probably offers a plan, it might not be sufficient for your needs, and it generally won’t come with you if you switch jobs. So it makes sense to look into private life insurance options. You might also consider long-term care insurance, which can protect your assets should you need nursing home care or in-home medical services.

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8. Don’t Overspend on Housing

Whether you’re buying or renting, housing tends to be one of the highest fixed costs in most people’s budgets. The lower you can keep that line item, the more money you’ll have to spend and save.

“The most successful retirees that I work with limited their mortgage payments to 15 or 20 percent of their income,” said Wes Moss, chief investment strategist at Capital Investment Advisors and author of “You Can Retire Sooner than You Think.”

9. Do Plan for the End

End-of-life planning is probably the least fun part of financial planning, but it’s one of the most important. Make sure you’ve at least got a will, a power of attorney and a health care proxy to ensure that your wishes are carried out in the way you’d like.

10. Don’t Forget to Revisit Your Plan

Even the best financial plan needs to be modified as life progresses and events like marriage, divorce or the birth of children change your priorities or goals. Check in at least every other year to be sure that your goals are still relevant and that you’re still on track to achieve them.

“You financial plan should be a living, breathing reflection of where you are today and where you want to be,” said Charlie Bolognino, founder and financial consultant at Side-by-Side Financial Planning in Plymouth, Minn.

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About the Author

Beth Braverman

Beth Braverman is an award-winning journalist and content producer, writing mostly about personal finance, parenting, and careers. Prior to launching her freelance editorial services business, Beth spent seven years covering personal finance, first as a senior reporter and social media editor at MONEY magazine and then as the Life + Money editor for The Fiscal Times. Beth has also worked as a daily newspaper reporter and as a trade magazine editor. In addition to personal finance, she has covered small business, luxury goods, government, and education.

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