As an enormous percentage of Americans continue to struggle with their finances, experts are starting to drill down on some extremely important areas of focus. The two that are currently leading the race are income and retirement planning. While they are both relatively similar, the reason why you must start thinking about them immediately is the fact they directly impact your short- and long-term standing.
For example, if you do not do any income planning, there is a very good chance that you will be underprepared for emergencies and unforeseen circumstances that may arise at any moment. Likewise, when you fail to do your retirement planning in a timely fashion, you are putting yourself in danger of undergoing a financial struggle at an old age.
To start, let us analyze the basics of income planning before getting into the advantages of it. According to a finance expert who has held multiple high-leadership positions in the past and currently works as a senior financial advisor at Wells Fargo, Regan Rohl, income planning relies upon detailed budgeting.
Although many other factors go into it, a well-rounded budget is where most Americans who are determined to get financially literate should begin. This means cross-referencing every single line of income with all expenses. Doing so gives a nice overview of expenses, cash inflows, and bottom line profits after the period in question ends. Mr. Rohl suggests trying to update these on a weekly or monthly basis. That said, what are the upsides of constantly planning for your income?
Better Spending Habits
When you are spending a plethora of time budgeting for all of your expenditures, you will be able to see where a lot of your miscellaneous costs come from. For instance, while buying coffee every morning may not be an extremely significant purchase, it could translate to the entire value of your monthly phone or cable bill, or even a month’s rent. These types of details will help you grow into a financially stable and mature person who knows how to weigh the pros and cons of engaging in a transaction.
Protection from Emergencies
As one of the mandatory steps in income planning, you will eventually have to account for some form of an emergency fund. Usually, this means saving around $1,000 a month for immediate expenses that you did not plan for. Examples would include costs to repair your vehicle that suddenly broke down, minor medical expenses, and so on. When you have no budget at hand, however, saving any amount of money will be borderline impossible.
Better Investment Outcomes
After paying off your overhead and putting some money in your emergency fund, you will have to start thinking about investing whatever remainder is available. If there is nothing left, you should consider eliminating some of your expenses or picking up an extra job to generate more income. Doing so will give you access to the much-needed investing capital. Whether you choose to go with traditional investing in securities or start your own business does not necessarily matter as long as your income plan allows for such ventures.
As you are going through the process of planning your income, you have to start planning your retirement as well. Waiting to do so once everything in the short run is operating well is not something that experts like Regan Rohl advise. The reason why is that your income planning issues and short-term debts may take you five to ten years to resolve. Well, if you do not do any retirement planning during that time, you will effectively waste five to ten years’ worth of compounding interest that you could have generated on savings or retirement plans.
Long-Term Safety from Increased Overhead
The number one advantage of retirement planning is the long-term safety that comes from having a solid amount of capital left aside for your non-working years. This is especially significant when you consider that you will have to bear some high expenses when you stop working as your employer will seldom continue paying for your health insurance and many other costs that can be substantial. Thus, having the safety margin to protect yourself against those new expenses will be crucial.
You Cannot Work Forever
Regardless of the field that you are in, you have to prepare yourself for ending your career at some point. While the age will depend on the type of job that you do, it is going to be impossible to outlast time and the toll that it will have on your body. As your working life comes to an end, your income will rapidly plummet as you start living off of your savings. If you do not have them, however, you are forcing yourself to continue working until a point where you physically may be unable to do so anymore, which is the worst possible scenario here.
No Need to Rely on Governmental Assistance
Finally, you should do everything within your power to never include any governmental assistance in your retirement planning. While you may have access to things like Social Security, counting on it is not something that successful financial planners recommend. Why? Because there is probably no entity in the nation that is less reliable than the federal government. For instance, there is no way to guarantee that a new law will not eliminate programs like Social Security. If that was to happen, your entire plan would be futile and there is a good chance that you would be behind on your savings by a sizeable margin.
Fortunately, there is no shortage of tools and resources that you can utilize to help yourself overcome the difficulties of income and retirement planning. Just think about the enormous number of websites, apps, or firms that specialize in this area. If you cannot figure out a good starting point or have some specific questions, you should always consider using one of these services.