For many, spring is a time to freshen up the home and garden, but the turn of the season is also a great time to assess your clients’ financial literacy. Every client has different financial planning needs and expectations, whether it’s managing a monthly budget or planning for retirement. Providing clients with the guidance they need to improve their financial literacy will contribute to their financial health and overall well-being.
Planning vs Budgeting
The distinction between budgeting and financial planning is an important distinction when it comes to financial literacy. Although budgeting plays a role in financial planning, budgeting itself is not a financial plan. Budgeting is an opportunity to list income and expenses and allocate the former to the latter, ensuring that expenses do not exceed income. When customers see where they are putting their money, they assess what is and what is not a necessary expense, which helps them make financially sound decisions.
Financial planning involves setting goals for different stages of life. For example, a person in their 20s can save for a wedding, while a person in their 40s can pay for their children’s school fees. Besides life stage planning, other important financial considerations include insurance, investments, savings and retirement.
Clean up the debt
Many clients believe that paying off their debt should be their first priority when looking at their financial situation, but it doesn’t have to be an all-or-nothing proposition. Creating a savings or emergency fund and saving for retirement can be done at the same time as paying down debt.
A client’s emergency fund must include one month’s net pay. This can provide a safety net in case of unexpected expenses. Incorporating a savings element into monthly budgeting as part of a long-term financial strategy will ensure clients are on track to meet their long-term goals while tackling debt here. and now.
Credit cards and student loans are two areas where customers often incur large debts that can seem overwhelming and derail their financial goals. Student loans and credit card debt usually have higher interest rates, so paying them off first can be a good strategy for eliminating debt altogether or improving credit scores.
If customers have multiple high-interest credit cards, they can prioritize repayment by organizing the cards by interest rate and paying them off from highest to lowest to ensure they pay the least amount. possible interest. Progress toward credit card debt reduction can help improve credit scores for future major purchases, such as a home.
Student loans aren’t just for people in their twenties. People of all ages face student loan repayments, especially those sending their children to college or returning to school themselves. Private loans often have higher interest rates, so they must be paid off first.
Once clients have a plan to reduce their debt, budgeting can be a useful tool to avoid taking on more debt. Identifying the causes of debt and suggesting ways to change behaviors are important discussions to have. By reducing their debt, clients have more options to develop a financial strategy that will protect them in the event of financial hardship and proactively achieve their financial goals for retirement.
Make way for retirement
Many clients overlook the importance of retirement planning in their twenties. Just because retirement is a long way off doesn’t mean it’s a lower priority. Retirement planning offers clients the opportunity to live comfortably after retirement. Clients who are in their 20s are likely starting their careers with a company that offers a 401(k).
Taking full advantage of a company’s 401(k) offer is a great way to start preparing for retirement and potentially earning free money if the company matches the contributions. If a client’s company does not offer a 401(k), they have the option of starting to contribute to an Individual Retirement Account. Contributing to these accounts over the long term will provide financial security in retirement.
As the client ages, it is important to continue to help them prioritize retirement planning. Clients in their 40s should consider the lifestyle they want to adopt in retirement and make adjustments to their retirement plan. Once a client turns 60, they will want to have six to eight times their salary saved in their 401(k). These guidelines can help a client get the most out of their 401(k) and prepare them to live comfortably in retirement.
Another way to plan for retirement is to invest. There are opportunities to grow a client’s savings by selling their investments as the market rises. Investing also involves risks, such as stock market crashes and managing inflation and deflation. When the market drops, clients can count on other assets in their retirement portfolio, such as cash reserves or the cash value of their life insurance policies, to help them out until the market stabilizes again. By being proactive with retirement planning, inflation and deflation will have less impact on a client’s savings.
Financial planning is an important part of financial success, and planning increases in importance as a client approaches retirement. Taking the time to budget, pay off debt and contribute to retirement is just as important for a client in their 20s as it is for a client in their 50s. Improving financial literacy allows clients to take control of their finances early and, in turn, successfully prepare for their financial goals and ultimately enjoy their retirement.