Top Accounting Career Disasters - No Financial Planning Strategy
When it comes to financial planning, many people have no plan. Maybe it’s something we just don’t think about. We tend to have very general dreams like, “One day I’d like to pay for my kid’s college education. One day I’d like to retire.”
If you want to pursue a career in accounting then understanding the fundamentals of solid financial planning is not optional. It’s essential. If you ran a business how would you feel if you found out your accountant was heavily in debt, never budgeted and didn’t have any kind of financial plan for the future. Not exactly an Accountant you’d want to be your trusted advisor? Correct?
But without taking the time to set a timeline for these goals, it’s very hard to accomplish anything.
Typically, when individuals initially meet with a financial planner, one of the first things they’ll do is put together a long list to answer the questions, “What does your financial future look like? What are your financial goals for the next year, 5 years, 10 years, and 20 years?”
When you actually write down that information and start look at it, it helps you do these 5 important things:
1. Identify financial areas which you need to research
Financial planning isn’t something to take lightly. Figure out your spending patterns, savings plan, and investment goals.
- Do you have children you want to send to college? Do you have a retirement plan through work or are you setting up your own plan? Do you want to purchase some stocks and bonds?
- Once you answer some of these important questions, it’s time to do your research. Figure out what types of accounts would be most beneficial for you and your situation.
- Some things to consider are your age, the amount of money you can invest, the level of risk you’re willing to take, and the taxes associated with different accounts.
2. Set specific financial goals for the future
- Put these goals in writing and in a place where you can refer to them often.
- Consider reassessing your goals at least once a year, just in case you've had any major changes in your life that would require adjusting or eliminating a previous goal or adding a new one.
3. Begin putting money aside in order to reach your goals
Once you have your financial planning strategy in place, take action and start saving.
- Setting goals is great. But if you’re not following the plan, you’re wasting precious time. College and retirement might seem distant, but time goes fast and now is the time to start setting money aside.
- It’s very easy to get into the habit of procrastinating. Many people make excuses and say money is tight this month, so they'll put money into that account next month. Guess what? They say the same thing next month too. Avoid this pattern!
4. Motivate yourself to stay the course
Once you see "the big picture" of your financial future, you’ll probably feel a little overwhelmed at first. But more importantly, you should start to feel excited and motivated to reach your goals.
- Who wouldn't sleep better at night knowing their financial future is all planned out and looking bright? Imagine how good it will feel to get monthly or yearly statements on your accounts and see how your money is accumulating.
- Seeing positive outcomes will keep you motivated to continue on the path to financial success.
5. Get out of debt
By the time some individuals go to see a financial advisor, it’s because they’ve already gotten themselves into debt and are seeking advice on how to get out.
- If you’re in debt, you probably aren't in any financial position to be saving for college or investing in the stock market. But where will this leave you in the future?
- Maybe you’re barely keeping a roof over your head. Are you wondering what you can do to make your situation better?
- Let's say you have a mortgage. Most homeowners just go on autopilot to pay it off. But what if you want to pay it off faster? Go to Bankrate.com and use their mortgage calculator. It’s a free online tool to help you figure out some other options.
- Using this tool, you can start pondering questions like, “If I save an extra $100 a month and put it towards my mortgage, how much faster will I get out of debt? How much interest will I save?”
- You’ll begin to see the difference between a dream and a goal. If you’re just daydreaming, “One day I’d like to get out of debt,” you may never get there. But if you actually write down, “I’d like to be debt-free in 15 years,” it gives you a chance to start figuring out how to get there.
When you put your financial planning strategy together, try and stick with it for the rest of your life. Adjust it as needed, but stay with it. It’s not something you just do once and forget about. Many individuals are naturally focused on the short term. That’s fine, as long as you’re also considering the future.
Consider these 3 time frames for your savings and investing
1. Short-term goals.
Your short-term goals are the financial issues you want to address between now and the next 3 years. This is the time to:
- Purchase a vehicle and obtain insurance coverage for all areas that apply (car, home, health, and life).
- Establish good credit by paying off your student loans, being on time with your current bill payments, and not getting into debt.
- Create a plan for savings, investments, and retirement, as well as an emergency fund.
2. Intermediate goals
Your intermediate goals are those you plan to address in 3 to 10 years. During this time, you might want to:
- Set aside money if you plan to get an advanced degree.
- Plan for wedding expenses and a down payment on a home.
- Prepare for the expenses associated with the birth or adoption of a child.
- Assign someone as your power of attorney and draw up a will.
- Increase the amount of money you’re saving and investing, if at all possible.
3. Long-term goals
Your long-term goals involve your financial outlook in 10 years all the way until retirement. Options like these might be in your long-term goals:
- Start a fund, such as a 529 Plan, to provide for the college education of your children.
- Continue paying into your retirement accounts and make housing and other plans for your retirement years.
- Plan to support ageing parents and make considerations for long-term health care for them as well as for yourself and your spouse.
- Meet with your financial advisor to discuss finances 3 to 6 months before you retire.
Keeping Your Financial Planning On Track
Once a year is a good checkpoint to ensure things are on track with your financial planning. It’s like seeing your doctor once a year for a checkup. If you do this, it prevents any major issues from coming up.
The best way to plan for your financial future is to create the plan and then check up on it regularly. Stay on track and you'll be glad you did!