How many of you are in the holiday rush of the season, putting off buying all those gifts you know you need to get? Many of us know the perils of procrastination, and yet it can be challenging to know how to prioritize what matters most.
When it comes to your finances, it can be hard to know where to begin when it comes to prioritizing your savings and spending plan. We get it! We know how stressful it can be to wade through the sometimes complex decisions.
The truth is, delaying this task can be costly in many ways—in time, energy, and money. If you’ve found yourself putting off financial planning, you could be losing money. Read on to learn 5 ways to spark motivation that will help add momentum to your planning process.
1. You’re Probably Not Saving As Much As You Should
The first reason you shouldn’t put off financial planning is that you’re probably not saving as much as you should. That’s not to say that the savings you do have shouldn’t be celebrated. But no matter the amount you have, you need to be sure it will be enough.
If you plan to retire in your mid-60s, your retirement savings may need to carry you through 30-plus years. Not to mention rising inflation that will decrease the value of your savings over time and the additional expenses you will likely encounter along the way. A study by the Center for Retirement Research estimated that the median retirement savings of Americans age 55-64 is $120,000, yet the average retirement cost is nearly $46,000 per year! At that rate, a savings of $120,000 will only last 3-4 years.
A sound strategy to avoid running out of money in retirement is to work with a financial professional to understand what your savings can handle. Contrary to popular belief, you cannot use a multiple of your annual income to determine how much to save. This is why it’s so crucial to plan ahead. The sooner you understand your need, the more options you will have and the easier your goals will be to accomplish.
2. Healthcare Costs Are on the Rise
If you’ve ever held a hefty medical bill in your hand, you aren’t alone. Healthcare costs in America are among the highest in the world. And as you age, you will likely require more healthcare services. According to the Fidelity Retiree Health Care Cost Estimate, the average couple at age 65 will need about $300,000 saved to cover healthcare costs in retirement.Most people don’t even have that much in their retirement accounts to live on, let alone cover medical costs.
Given the events of the past two years and continuing inflation, it’s more important than ever to start preparing for the ever-increasing cost of care. The longer you wait, the less options you’ll have. Working with an experienced professional can help you evaluate your options and build a long-term plan for healthcare.
3. Tax Strategies Take Multiple Years to Implement
Another reason not to put off financial planning is that if you don’t start early, you’ll miss out on several tax strategies that take years to implement, including:
Tax-Advantaged Retirement Savings
If you’re in a high tax bracket, being able to save for retirement with pre-tax dollars is a great advantage because pre-tax contributions reduce your taxable income and ultimately reduce the amount of taxes you owe. This strategy could save you thousands of dollars in taxes each year. The earlier you start, the more you’ll save over the course of your career.
Roth Conversions
Roth conversions help to increase your retirement savings and decrease your long-term tax liability by transferring funds from a pre-tax retirement vehicle (traditional IRA) to an after-tax account (Roth IRA). This allows your money to grow tax-free for as long as you’d like, and required minimum distributions (RMDs) are avoided as well.
Withdrawal Strategies
When it comes to withdrawing from your retirement accounts, how you take your distributions can make all the difference. Each retirement asset (employer-sponsored accounts, Social Security, traditional IRAs, etc.) has different tax characteristics. Creating a withdrawal strategy can help lower your tax burden by structuring withdrawals from each income source in a tax-efficient way.
To properly implement these strategies and more, a long-term understanding of your full financial picture is required. Putting off financial planning can leave you stuck with a huge tax bill that could have been avoided.
4. Take Advantage of Compound Interest
Just as saving early allows you to take advantage of massive tax savings over time, there is a compound effect that occurs with the money that is invested as well. The money contributed to your retirement account each year can grow exponentially over time, but the key part of that equation is time.
A single penny that doubles every day for a month may not seem like much on the surface, especially when compared to $1 million up front. But by the time the 30th day rolls around, you will have over $5 million in pennies. This same concept can be applied to your retirement account, but because retirement investments are at the mercy of the highs and lows of the stock market, it will take more than 30 days to see that kind of growth.
If you wait to invest, you may be missing out on growth year after year, and the resulting loss of earnings can be substantial. Not to mention the potential for loss when you try to invest yourself without the proper advice and guidance of a professional. We’ve found that many clients are often invested too conservatively and miss out on the opportunity for significant growth in even just a slightly riskier portfolio.
5. Financial Planning Can Alleviate Stress
Do you feel 100% confident about the myriad of financial choices you make day in and day out? Have you encountered more complexity as your assets have grown? Partnering with a financial professional can help alleviate the stress and anxiety that comes from trying to figure out your finances.
Think about all the time you spend worrying over finances and whether you are saving enough money. Are those thoughts preventing you from making great memories and actually living your life? For many of our clients, the answer is yes. But it doesn’t have to be that way.
Financial planning can help alleviate the stress that comes from not knowing where you stand or how to achieve your goals. It can provide clarity by defining a path from point A to point B and allowing you to get the most out of your life along the way.
Get Started Today
As you can see, there are many motivating reasons to start the financial planning process sooner rather than later. Use these tips as a way to remind yourself that time is of the essence and that the quicker you take action, the more you will set yourself up for future success.
If you have long-term financial goals (like buying a house, planning a wedding, or saving for retirement), working with a trusted professional can be one of the best ways to reach your goals faster. Don’t leave your most important priorities to chance!
At Favor Wealth, we provide a menu of pre-constructed, risk-managed portfolios that make choosing and implementing a personal investment strategy simpler than ever—so you can feel confident in your financial future and get back to the life you love. Get started by calling us at 626-529-0445 or email Ricky directly at info@favorwealth.com.
About Ricky
Ricky Biel is founder, wealth manager and Chartered Retirement Planning Counselor℠ professional at Favor Wealth, an independent financial advisory firm serving individuals and families near Pasadena, California. Ricky Biel founded Favor Wealth with a desire to provide unbiased, client-centered, community-based financial advice. Ricky and his team of caring, smart professionals want their clients to feel like they’ve done them a favor, making it easier than ever to accomplish their financial goals by blending proven investment methodologies with creative financial technologies. He is on a mission to help his family of clients feel both a sense of relief and excitement about their future. Favor Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the Favor Wealth team may be able to help, contact them today at 626-529-0445 or email Ricky directly at info@favorwealth.com.
The commentary on this blog/website reflects the personal opinions, viewpoints and analyses of the Favor Wealth Advisors’ employees providing such comments, and should not be regarded as a description of advisory services provided by Favor Wealth Advisors or performance returns of any Favor Wealth Advisors’ Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Favor Wealth Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.