4 Financial Planning Strategies From Experts and the Important Role Your Bank Plays
Written by
Lydia Kibet
Edited by
Rebekah Evans
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Most people think of their bank as a place to deposit and withdraw cash, but it’s more than that. Whether investing, building an emergency fund or saving for retirement, your bank plays a key role in helping you achieve your financial goals.
Here are common financial planning strategies and how your bank can help secure your financial future.
Cash Flow Management
One of the most fundamental aspects of financial planning is cash flow — the movement of money in and out of your accounts. Without a clear understanding of where your money is going, it can be challenging to make financial decisions.
“Basic financial planning starts with cash flow. If you don’t know where your money is going, it’s hard to know how much you’re saving and if you’re moving towards your goals,” said David Peters, certified financial planner (CFP) and founder of Peters Financial. “Banks will often provide tools for evaluating spending habits, but even if they don’t, you can view your bank statements from one month to the next and know where you’re spending your money.”
You can take control of your financial future by leveraging banking tools and building smart spending habits.
Emergency Fund
Life is unpredictable. Unexpected financial emergencies can arise at any time when you least expect them. Whether it’s an urgent home repair, a medical emergency or a sudden job loss, an emergency fund acts as a safety net during such times. Without one, you may end up resorting to high-interest credit cards or tapping into your investments.
Banks offer several tools to help you build an emergency fund. From high-yield savings accounts to money market accounts and certificates of deposits (CDs), there’s something for everyone.
“Having a bank hold six to 12 months’ worth of living expenses is a great way to avoid touching your investments,” said Lucas Barcelo, founder of Thrivin Life. “This allows them to do what they were intended to do. There are also other options for long-term savings that earn you a little bit more interest relatively safely. Things like CDs, which bind up the money for a period of time, several months to over a year or so.”
Investment Planning
Inflation is eating away at the purchasing power of many people. That’s why saving money doesn’t cut it anymore. Having investments that appreciate over time is one of the ways to keep up with inflation and secure your financial future.
Banks provide different ways to invest money based on your goals. From brokerage accounts — where you can buy and sell stocks, index funds, exchange-traded funds or mutual funds — to individual retirement accounts (IRAs), your money could work harder for you. Some banks have robo-advisors to help you build an investment portfolio that aligns with your goals.
Debt Management
Debt is often viewed negatively, but it can be a valuable tool when used wisely. You can borrow money from a bank and use the funds to make significant purchases and build stability over time. “Banks are often the source for lending and making larger financial purchases — like a house or a car — possible,” Peters said.
While borrowing can be scary and even harmful at times, Barcelo thinks that there are ways to use debt to your advantage.
“Credit cards are an absolute must for anyone looking to maximize their potential earnings,” Barcelo added. “For example, if you have a reward credit card that gives you 1% to 5% back on everything you buy, let’s say you put groceries, gas, bills and entertainment on that card, which comes out to about an average of $4,000 per month. In one year, you earned back an additional $480 to $2,400 when the guy who uses a debit card got zero.”
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