On the great blog Frugal Dad, he posed a great question: I am debt free, but where do I go from here? I get asked this question quite a bit in my practice, so I thought I would dig up this article I wrote to help answer it. It is a great question and people get overwhelmed with the quantity of things they “should be working on”. Every financial company will give you a checklist of things to be focused on and of course the things they sell are “critical” no matter who you are! This just isn’t practical!
How can you make sure that you are making the best financial decisions? No matter what stage in your life you are at, there are important decisions that need to be made. It is important to know what areas to focus on. But the world of financial planning and advice is very broad, how do you know what things you should be worrying about and which can wait until later?
You know where you want to go. But how do you get there?
20’s and 30’s “The Early Years”
You are at the beginning of your professional career. You have done everything right up to this point. You went to college, found a good job, and are working hard to climb the corporate ladder. You are probably starting a family. This is the time in your life to lay good foundation. You should focus on the basics like:
- Paying off debt
- Starting a savings plan
- Providing basic legal and insurance protection for your family
Establish good habits now, and it will be much easier to implement more sophisticated strategies later on. A solid foundation will allow you to make smart choices as you move through life and enable you to take advantage of opportunities that present themselves.
40’s and 50’s “The Wealth Accumulation Years”
These are generally your peak earning years. You will have more cash come in (and go out!) then at any other time in your life. Maybe you are putting the maximum into your 401(k), but still have some money left over each month. Do I pay off the house? What about college? Am I saving enough for retirement? Now is the time to build on that foundation you built earlier in your life and really start to grow your wealth. But growing wealth effectively requires comprehensive planning involving things like:
- Education planning
- Tax Planning
- Savings goals
- Investment planning
By having a comprehensive plan you maximize your opportunities and minimize your weaknesses. Don’t wait until you are ready to retire to ask, ‘can I retire?’ Start now and you will be well on your way to comfortable retirement.
60’s “Transition Years”
This decade is the most common time for people to make the transition to retirement. You have worked and saved up a nice nest egg. But you can’t buy groceries with a 401(k), or pay for a vacation with a rental property. You need answers to that fundamental retirement questions: “How do I turn my wealth into a monthly check?” Managing risk also becomes critical at this stage of life. You may not be able to replace the wealth that you have built if you lose it. Protecting it becomes a higher priority than growing it. You should be focused on issues like:
- Retirement income planning
- Diversified income
- Risk management
- Tax planning
A well done retirement income plan can provide you peace of mind for years. It provides a consistent income stream that you can rely on in good markets and bad. It takes the guesswork out of retirement so you can start enjoying your well-earned retirement.
70’s and Beyond “The Legacy Years”
Once you have done all the traveling you want, spent the time volunteering, or playing golf, most people start to slow down. That is when the biggest questions come out. How do I use my accumulated wealth to establish a legacy? You realize that you don’t need all the money you have accumulated. But how do you transfer it to the next generation? These can be some of the most complex issues to face including:
- Estate tax issues
- Gift tax issues
- Charitable trusts
- Legal issues
The worst thing you can do is leave your wealth without a plan. Don’t create a mess for your heirs, or let Uncle Sam take a bite out of what you worked and earned. A well done estate plan can make sure that you know your legacy will outlast you!
Financial planning is a well-covered topic in the financial press. It is a common conversation to have with family and coworkers. There is so much information, in fact, that most people do nothing, because they don’t know where to start. We hope that this general guide can help you stay focused on the task at hand, so that you can grow and transfer your wealth successfully!