Well it's our final week so I will sign off with Financial Planning 101. This has been quite an experience. It took me on a journey VERY different than what I expected, and from Leah's last blog, it appears very different from what she expected as well. But I think everyone involved learned alot! And for me, that's what life is all about -- lifelong learning!
Financial Planning 101
First and foremost, Leah and Eric need to pay off all debt and then establish an amount they can commit to saving on a monthly basis. They should review all insurance coverage and make sure you are adequately covered (auto, renters, homeowners, disability, life insurance, etc.) People grossly underestimate their need for most insurances and either under-insure or not even have coverage. In addition, they need to build up an emergency fund of at least 6 months of expenses and if they do dip into it, build it back up. Finally when they have that foundation in place, start to invest their monthly savings into their future dreams they have of buying a home, retirement, and for certain other shorter term needs like cars and such. Of course they should seek financial advice before buying into investments and learn about the financial vehicles they are considering using.
The most important element going forward for Leah and Eric and most people is to stay out of debt. You do this by saving up first for all future needs and desires. If you know you are planning to have a baby and don't have maternity insurance, you find out the cost of the delivery and save up in advance. If there is a trip you are planning to take, make a budget and save up for it before you go. Anticipate potential hard times in the future and plan for them. Know that you can reduce spending immediately if you need to, so don't let your monthly fixed obligations get too high, or you don't have any wiggle room.
And finally, don't EVER let yourself believe, even for a minute, that you can go ahead and buy something and pay it off later. Don't ever let a salesperson or real estate agent tell you that you can afford more, or it's OK to stretch. Take it from someone who has spent more than two decades talking to people about their finances. The people who have savings to rely on have far more peace of mind in their lives. No dinner out, clothing, flat screen TV, gizmo or car can give you that! Peace of mind -- that is what financial planning is all about.
I am sending a completed Financial Plan via email to Leah and Eric. I am saddened to not be able to share the wealth of my experience with them. To most people, a plan is simply Greek without someone to explain it, tell stories that make it real, and help them to implement the actions.
Hopefully I can get my chance to share that knowledge via my upcoming book, It's Just Money-So Why Does It Cause So Many Problems? In a story book format, I am hoping to make financial planning simple for those who choose to read it.