Although many think the economic recession inspired Americans to become better savers, a 2013 study from Northwestern Mutual on Financial Planning Obstacles shows the reverse is true. Some 6 in 10 Americans say their financial planning needs improvement, the study reports.
While many Americans were forced to cut back during the recession, they don’t necessarily know how to move forward. Many people now find themselves in different income brackets, while others may have used up emergency funds or robbed their retirement accounts to offset financial setbacks.
Those who responded to the study said their biggest barriers to planning for the future are a sense that they just don’t know where to turn or how to begin, or that they feel stymied because they don’t think they have enough time to deal with long-term goals.
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Ask Where You Want to Be
Perhaps the most important question for people to ask is where they want to end up—not what they have to give up. Budgets can empower people to achieve what they want in life, both now and when they retire, says personal financial columnist Liz Weston, author of several books, including There Are No Dumb Questions About Money: Answers and Advice to Help You Make the Most of Your Finances.
“Most people view budgets like a diet,” Weston said. Instead of thinking about what they need to give up, they should ask where their money is going and if they’d rather have it go somewhere else, she advises.
A budget is simply a process of choices, Weston added. “What you’re hoping to do is spend less on the stuff you don’t care about and spend more on the things that you do.”
Look Forward
One of the best ways to get back on track is to look forward instead of back, when incomes might have been higher, said Weston. “One of the most common things I see is people thinking they should be able to have a better lifestyle than they do on the income that they have.”
That belief can lead to overspending, denial, and problems saving money. Part of the solution is a reality check. “You’ve got to do the math for where you are today,” she said. “At some point you’ve got to say, ‘The past is past.’”
Do Some Research
Everyone has questions about money. “No one is born knowing this stuff,” Weston said, adding that even those educated about financial planning by their parents are now dealing with outdated information.
Many of the money rules followed by past generations no longer match today’s financial realities, she said. For example, the old wisdom of stretching to buy a house blew up on many people when the housing bubble burst.
“Obviously the rules that people were operating by during the boom years didn’t work,” Weston added. “People have to be more critical thinkers than they have been in the past.”
That’s why people have to ask plenty of questions along the way, Weston said. “It’s important to take the bull by the horns and realize you have to educate yourself,” she said. To find answers, don’t be afraid to do the research and consult books, trusted websites, or financial advisors, she added.
Know Whom to Trust
Twenty years ago it was difficult for middle-income people to find financial advice. Today, people can feel overloaded with information—most of it contradictory. Don’t assume that because someone has a blog or TV show that they know what they’re talking about, Weston cautioned. Instead, make sure the source has a background in comprehensive financial planning.
If you’re interested in hiring a financial advisor, know your goals and make a short list of recommendations from friends, family, and other trusted sources. Set up face-to interviews with your candidates—to be sure you’re on the same page.
“There are more resources for middle-income people now, including different types of financial advisors to help with different budgets and needs,” Weston said. Options range from comprehensive financial planners, who can offer advice on a wide range of subjects, to fee-only financial planners who charge by the hour. Even die-hard do-it-yourselfers, however, should consider consulting some type of professional planner when they get within 10 years of retirement to make sure they’re on the right track, she added.
Take a First Step
When getting started, keep things simple. “If you can’t explain it to a 10-year-old, you probably shouldn’t be investing in it or doing it,” she says.Hi, I’m Dana Ray Reynolds. As a financial planner, I offer my services to private businesses and individuals to help them make informed decisions and achieve financial security. Follow me on Facebook for more helpful tips in financial planning.
For retirement planning, start with a 401k (up to what the employer will match) and an IRA.
Those who don’t put money into a retirement plan can miss the employer match, the tax break for contributing, and a chance to have their returns start earning returns. “Every $1,000 people fail to put into a 401k is at least $10,000 in lost retirement income,” Weston says.
Weston’s most important tip: Don’t give up. “If this isn’t natural, if it doesn’t make sense, hang in there,” she said.
Learning about money is a lot like learning a new language, Weston said. When people first start talking about money,the words may be confusing, she said. “Then gradually you start being able to translate them to yourself, and you figure it out.”
