Many of you know I am a HUGE Star Wars fan. In the latest movie depicting light versus dark, we follow a lone warrior on an unknown path. Cast into the universe, she roams the star system with no plan and no clear direction. Eventually, she finds allies, and together they fight as one to save the galaxy.
There is a relevant parallel here for investors. As we go through life, it can be all-too-easy to simply earn, spend, and invest with no plan or clear direction. This lack of a plan can lead to the dark side when it comes to your financial future. Because as you age, the complexities of managing wealth can increase. Issues such as insurance, estate planning, retirement, tax mitigation, and transitioning wealth to heirs are complex. These situations need to be managed carefullyâ€”with forethought and insight.
With that in mind, here are 3 tips to help manage your money that can help in the long run:
Make a plan
Planning is the key to success. Determine where youâ€™re going. Do so by creating short-term, mid-term, and long-term goals. Short-term goals are within 1 year, while mid-term goals are between 2 and 5 years, and long-term goals are greater than 5 years. Whether your goals are a new home, paying for a childâ€™s education, or retirement savings, etc. â€” youâ€™ll need an estimate ofÂ how much money youâ€™ll need for each goal. Then break that down into a monthly figure, donâ€™t be discouraged if the dollar amount is overwhelming. The important thing is to know your goals, and what it takes to get there.
In addition to looking at your big life goals, study your assets, liabilities, income, and expenses. Divide your expenses according to what is fixed, what will go away over time, and what will inflate. Poke holes in your insurance policies, employee benefits plan, social security estimates, and home mortgage(s). Do you have enough life insurance coverage, or too much? Do you need disability insurance or long-term care insurance? These are a few topics to consider helping ensure you have a proper balance.
Itâ€™s easy to give in to temptation and spend more than you should. The best way to protect yourself from the temptation is to automate your savings. Simply set up recurring transfers from your checking account to your savings and investment accounts. Itâ€™s an easy way to help avoid bad money habits so youâ€™re paying yourself first. Set aside 15 minutes on your calendar now to do it. Not later, now. Your future self will thank you.
When it comes to your financial life, there are many considerations that a noviceÂ or even an experiencedÂ investor may not fully appreciate. By having some strategies in place, and with careful guidance, you can help avoid the fate that some rogue ones fall into.