In Cash Flow, Financial Planning, Spending

Have you ever wondered whether or not you’re setting yourself up for financial success? Or worried you may not be saving enough and will run out of money one day? If so, you wouldn’t be alone.

The financial statistics are scary and signal a dismal reality Americans have with their money. Would you be surprised to learn that two-thirds of Americans would struggle to scrounge up $1,000 in an emergency, according The Associated Press-NORC Center for Public Affairs Research? Or that about 77 million Americans, or 35 percent of adults with a credit file, have debt in collections reported in their credit files, according to the Urban Institute.

If you’re up to your eyeballs in credit card debt or haven’t saved a penny toward retirement, it’s much easier to assume you’re probably not on track financially. But when you are saving toward retirement and you are checking off many of the boxes when it comes to being financially responsible, it’s still good to ask if you’re doing enough, or the right combination of things, to help you reach financial success.

Here’s the fastest way to find out if you’re on track financially no matter where you are on your financial journey.

  1. Calculate Your Net Worth

Now, before your eyes glaze over and I lose you because it sounds like I’m putting you to work –stay with me because this is fairly easy and straight-forward.

The fastest and easiest way for you to take a pulse on where you stand financially is to find out just how much you’re worth in a dollar sense. Add up any cash, investments, and real assets you own and subtract everything you owe (credit card debt, student loans, business loans, car loans, furniture loans, etc.). If your number is a positive number, that’s a good sign!

A general rule of thumb is that you want your Net Worth to amount to the following by certain age milestones:

  • Net Worth in Your 20s: Don’t worry about your number in this decade but save as much as possible!
  • Net Worth in Your 30s: Equal to half your annual income or higher
  • Net Worth in Your 40s: Equal to 2 times your annual income or higher
  • Net Worth in Your 50s: Equal to 4 times your annual income or higher
  • Net Worth in Your 60s: Equal to 6 times your annual income or higher
  1. You Don’t Overspend Your Income

Living within your means and avoiding debt is a recipe for financial success. No matter how you slice it, controlling your spending rather than allowing your spending to control you is a good sign that you’re on the right track with your finances.

Future Financial Tip: Automate your finances! When you automatically put a portion of your paycheck toward retirement savings, fixed expenses, church and charity, and other defined financial goals (like a vacation or a household project), the rest that is left can be spent on variable and discretionary expenses without compromising long-term goals.

  1. You’re Saving Enough Money and Investing

Saving money is fantastic. Saving money in a high-yield savings account for the cash you want to have on the ready and investing the rest in your employer-sponsored retirement plan, Roth IRA, Index Funds, or other type of target-date mutual fund is just good money practice.

Though a question many of my clients ask me when we first start working together is whether they are saving enough money. And that is the right question to ask. Let me first start out by saying that this number of “enough” is personal to each person because it is based on your situation and goals. That being said, general advice would be to save and invest somewhere around 20% of your annual income toward retirement, and that includes your employer-match.

Conclusion

Getting confirmation that you’re on track financially can be a relief for obvious reasons. Knowing you’re doing what you should be doing today to build for tomorrow is how you can reach your financial goals and your definition of financial success. This article presents some best practices, but you can always reach out to me at Future Map Financial for a more personalized discussion about your specific situation.

 

HANDY, DANDY & ACTIONABLE MONEY-SAVING TIP:

As a financial planner, my goal is to leverage technology to assist my clients with achieving their financial goals. Well, I am super excited to offer readers of my FRANKly SPEAKING FINANCIAL PLANNING BLOG access to Future Map Financial’s secure Financial Planning Tool. This financial planning tool walks you through a simple six-step process, in which you can establish financial goals, aggregate your financial accounts (i.e. checking acct, savings acct, credit card accts, student loan accts, etc.), create a budget, and calculate your net worth. By the way, the account aggregation tool pulls in all your financial transactions for the past three months and updates daily. Create your account and access the secure Financial Planning Tool by clicking HERE.

NEXT FRANKly SPEAKING POST…

There are many different ways to funding your child’s education. In the next installment of FRANKly SPEAKING, I’ll talk specifically about the 529 College Saving Plan, how it works, and how to establish one.

As always, I invite you to reach out to me – in real life – with any comments, feedback or questions!  [email protected]

 

Disclaimer: The information contained in this article is for informational purposes.  None of the information provided in this article is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. Please consult with your accountant, finance professional, and/or legal counsel regarding your specific circumstance. Reproduction of this material is prohibited without written permission from Frank Shields, and all rights are reserved. Read the full Disclaimer.

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