Creating a financial plan for the future can get overwhelming quickly. After paying off debt such as your student loan, it’s a good idea to use all of that “extra” money for something more positive, like putting money away to create a comfortable retirement.
But trying to plan out tomorrow’s needs today is tricky for even the most seasoned money managers. Where should you start, and how can you make sure your financial plan won’t fail?
We’ve nailed down three red flags that you’ll need to watch out for if you want to keep your financial plan stable.
Making a conscious effort to avoid these will help you stay on the path to a healthy financial situation.
You Don’t Have a Specific Goal
A financial plan without a goal is not going to have the results you’re hoping to get.
Yes, “retirement at 60” is a goal, but what does that retirement look like? Are you planning to travel, buy a sprawling beach home, and drive an Alfa Romeo?
Perhaps you’re not ready to think about retirement. Do you want to buy a house after college? Travel and see the world?
These two scenarios require drastically different savings goals and financial planning.
Be specific about what you want your life to look like and set milestones that can help ensure you’re on track. The clearer you are about what you want, the better chance you’ll have to reach your goals.
Your Expectations Are Unrealistic
When it comes to financial plans, the rule of thumb is “plan for the worst, hope for the best.”
When it comes to investing, we all hope for an 8% return that can keep us more than comfortable, the reality of current returns is much different.
When creating a financial plan, it’s best to be conservative with return estimates, contributions, etc. Also, be sure to run your plan through a few financial stress tests like the Monte Carlo simulation. That way, you’ll ensure your portfolio is sheltered from market volatility and that you’re still on the path to meet your goals.
When it comes to personal savings goals after college, think about where your career is headed and give yourself a realistic timeframe.
Your Emotions Get in the Way
Money is an emotionally charged topic. Some feel ashamed of their financial situation, while others use their finances to validate their lifestyle choices.
When emotions get into financial planning, the results can be chaotic.
So many of us get pulled into wrong ideas because of emotions (see the GameStop stock debacle of January 2021), and it can be hard to protect a financial plan against them.
Finding ways to limit the irrational when accessing your long-term strategies is the best way to prevent your financial plan from failing.
Work with a financial planner, if you can, to help create a plan that’s positioned to pay off in the long term, and that also allows you to have a small amount of “fun” money to gamble with however you like.
That way, you’re not making rash decisions now that can seriously affect your lifestyle later.
Having a solid financial plan can make a world of difference when you’re fresh out of college.
Make sure you follow the tips above, and you’ll be on track for the financial goals that you’ve always dreamt of.