Regardless of how much money you make, not making a financial plan now could cost you hundreds of thousands of dollars by the end of your life.
Unfortunately, most Americans making between $35,000 and $100,000 a year don’t have a financial plan, according to a study from investment advisory firm Financial Engines. Nearly half of those making more than $100,000 a year do.
“No matter how much you may earn, everyone can benefit from having a full financial plan,” says Wei-Yin Hu, VP of financial research at Financial Engines. “Like most other things in life, you need a plan to achieve your financial goals — be it retiring by a certain age or paying for your children’s college education. Without a plan, your chances of successfully reaching your goals go down significantly.”
Regardless of income, a good financial plan has proven results of saving more. Financial Engines says that on average, a person with a financial plan saves about 10 percent of their salaries toward retirement, while those without a plan save about 6 percent.
It may not sound like much, but Financial Engines does the math to show the difference. Someone earning $100,000 who puts 6 percent of their salary toward retirement could earn as much as $890,000 after 25 years. But if they had saved 10 percent, they could have as much as $1.13 million after 25 years — that’s an extra $240,000. See how much you know about financial planning.
How to make a financial plan without paying for it
The Financial Engines study shows that most workers — 57 percent — were interested in financial planning help from work. While employer help is nice and a huge benefit, what if you don’t always have that option at your job?
No matter how young or old you are, your very first step should be to create a budget. See what your necessities are by including how much you make versus how much you spend, starting with the most important and working your way down to the ones you could ditch.
Categorize your expenses by the housing model: mortgage would be its own category, and so would utility bills, and home maintenance. Be as stringent or as flexible as you want; some could budget all their food into one category, while others may split it up as grocery purchases, coffee shops, and other restaurants. But remember to always include a budget line for saving. Make it a priority just like your other expenses!
Check out your banking online, since most banks offer resources to monitor your spending. At the very least, you’ll be able to track your transactions to see where your money goes. This goes for your credit cards as well.
Regardless of whether you’re working toward better money management with your partner, with your family, or because you’re looking to have a better retirement, there are plenty of ways to monitor your spending. You can get on the right track to a financial plan that works for you. If you’re at a loss, check out our solutions center so we can get you on the path to awesome money management.
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