INDUSTRY INSIGHT
YOUR FINANCES
SPONSORED CONTENT
NEW YEAR ’ S RESOLUTION
FOR FINANCIAL FITNESS
At the start of a new year , many of us make resolutions to improve our health , work on a life goal , or get our personal finances on the right track . There ’ s never been more information ( or lack of direction ) available when it comes to personal finance . Whether it ’ s Jim Cramer on CNBC proclaiming how to invest your mad money or an internet platform like Reddit promoting the hottest meme stock , there ’ s an infinity of voices disseminating advice today . Although , potentially considered old fashion and out-of-date , most people will greatly benefit from following time-tested traditional basics to getting their financial affairs in order .
I remember several years ago when we met with a prospective middle-aged client , we discussed their financial situation and prepared a financial plan , which we use to provide recommendations . This couple were both professionals with a good income and were looking for advice to start building wealth . However , despite having well paying jobs , they had almost no retirement savings , very little home equity , and over six figures in credit card debt and personal loans . We prepared a plan to start paying off their debt beginning with the high interest rate credit card . In this situation it was imperative to first focus on reducing debt , which was consuming their monthly cash flow , before any serious saving and investing could begin . Surprisingly , they were unwilling to adjust their current lifestyle and thought another easier solution must exist .
Conversely , we ’ ve seen clients with modest incomes successfully accumulate wealth over the decades . These people tend to grasp the basics of personal finance : they live withing their means , avoid taking on too much debt , and save and invest in a disciplined and prudent manner . Take for example a US mail carrier earning $ 75,000 a year . Assuming they save 10 % a year into their Thrift Savings Plan , receive a 4 % employer match , and earn an annual investment return of 7 % would result in about $ 611,000 after 25 years . This only considers their employer retirement plan and excludes other investments and retirement income sources such as Social Security or a pension if available . Having a successful retirement plan is a result of getting the basics right , not having the insight of Warren Buffett .
Three basic steps on the path to financial success include developing a budget , setting up an emergency fund , then longterm saving and investing . Fidelity recently published an analysis based on spending data and concluded most people will need somewhere between 55 % and 80 % of their preretirement income to maintain their lifestyle in retirement . Also , Fidelity provided a simple guideline for saving and spending , which proposed designating 50 % of your income towards essential expenses ( housing , auto , utilities , etc .), 5 % towards emergency savings , 15 % for retirement savings including any employer match , and the remaining 30 % for discretionary spending or supplemental savings . Of course , these amounts will vary depending on your individual situation .
Developing a budget is a good starting point to assess your financial situation from a cash flow perspective . From our experience the majority of people don ’ t really know what their income or monthly expenses are . It ’ s important to take some time and effort to review your cash flow whether using a simple notebook , Excel spreadsheet , or software program such as Mint . Tracking a few months of income , savings , and spending will provide a general estimate .
Once you have a budget as a starting point another key step is to establish an emergency fund . The idea here is setting up and funding a safe , low risk , and liquid account such as a savings account at the bank or money market fund . The goal of the emergency fund is to have a cash reserve , which will allow you to avoid taking on debt or having to sell a long-term asset when the unexpected happens ( and it will !), such as a home or auto repair or out-of-pocket medical expense . A rule of thumb for the emergency fund is to hold 3 to 6 months of expenses depending on your income consistency and personal comfort level .
In addition to an emergency fund , the next basic step is to save and invest for retirement . Social Security is projected to cover only about 40 % of preretirement income and most workers today no longer have traditional pensions . A recommended target for most workers is to save 15 % of their income into a retirement plan . Take advantage of participating in an employer sponsored retirement plan such as a 401 ( k ) or 403 ( b ) plan , which provides a vehicle to make contributions through payroll and may offer a matching contribution from the employer . Contributing to a retirement plan and investing into a diversified strategy that ’ s appropriate for your time horizon and risk tolerance will help provide the long-term growth needed to meet your retirement objectives .
These are only a couple fundamental steps anyone can take to get started on the path to making their financial fitness resolutions become a reality . Of course , these steps are by no means comprehensive . It may be helpful to meet with a financial advisor to review your personal financial situation and develop and implement a specific plan to achieve your goals .
Please visit our website , hfinancialmanagement . com , for more information about H Financial Management ’ s investment philosophy .
This Industry Insight was written by Jeffrey A . Karns of H Financial Management , a private wealth manager based in Southpointe . Please contact Jeff at :
H Financial Management , Plaza I , 400 Southpointe Blvd ., Suite # 420 , Canonsburg , PA 15317 , Phone : 724.745.9406 Email : jeff @ hfinancial . net Web : hfinancialmanagement . com
Securities offered through Triad Advisors , Member FINRA / SIPC . Advisory Services offered through H Financial Management . H Financial Management is not affiliated with Triad Advisors .
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