October is National Financial Planning Month, and it’s the perfect time to check in on your savings and investments. The occasion might remind you to check on some forgotten accounts or stick some extra money aside next payday.
While those are great ideas, the biggest takeaway of Financial Planning Month should be tending to your long-term financial plan for retirement. Here are seven key tips for building towards a secure financial future - straight from our expert financial advisors.
7 Timeless Tips for Securing Your Financial Future
1. Pay Yourself First
The most important part of preparing for retirement is setting up a regular investment plan and sticking to it. Saving 10% of your paycheck is a good goal, and if you can set it up to invest automatically, all the better. Consistent saving lets you build wealth over the long haul, no matter what your salary. And the power of compound interest means that every dollar you save now will pay dividends later.
2. Beware of Lifestyle Creep
A raise at work or a sudden windfall can be a tempting opportunity to splurge. But before you spend that money on travel, home improvements, or a new car, consider how it fits into your long-term financial plans. Would investing some of your new higher salary allow you to retire sooner? Can you afford that new car without sacrificing your savings plan? Investing a lump sum is a great way to boost your retirement funds, and you can still set a small portion aside to have some fun.
3. Don’t Try to Beat the Market
It can be tempting to invest in actively managed funds that promise to beat the market. Sometimes, they do perform incredibly well - for a while. But over a long enough timeline, investing in low-cost index funds almost always yields a better return. Between 2001 and 2016, 90% of actively managed funds performed worse than the S&P 500. Considering the high fees associated with active funds (and the risk of underperforming) low-cost index funds are a safer bet to slowly but steadily build your savings.
4. Diversity Your Assets
When a particular stock or industry is hot, it might seem like a good idea to go all-in to maximize gains. But history has shown, no investment goes up forever. Every asset will rise and fall, and the only way to protect yourself - and secure your retirement - is by diversifying your investments. That means a mix of stocks, bonds, and other investments like real estate. The closer you get to retirement, the safer you want to be with your investing strategy, which in most cases means fewer stocks. Don’t forget to periodically rebalance your portfolio to make sure you’re managing risk properly.
5. Never Mix Emotions and Investing
It isn’t always easy to separate your emotions from your investment choices. You’ve worked hard to build your savings, and you want to maximize them at every turn. However, our natural feelings, like fear, greed, and hope often distract us from objective and analytical investing decisions. Rather than going with your gut feeling or what your buddy says, stick to a predetermined investment process. You’ll tune out the noise of market swings and the temptation to deviate from your plan, and probably save yourself both money and heartache.
6. Personal Finance Is More ‘Personal’ Than Finance
Financial planning means more than amassing as much wealth as possible. It’s about defining your ideal retirement lifestyle, then creating a roadmap to get there. For some people, that means investing in a large home for a family. For others, it means living modestly but traveling frequently. Whatever route you choose, set goals for what you want out of life and build your financial plans around those goals.
7. Time in the Market Beats Timing the Market
With hindsight, it’s easy to see the peaks and valleys in the market and find the hypothetical best time to invest. But trying to predict and act on market changes on an ongoing basis is far, far more difficult. While waiting for the perfect time to invest might seem productive, timing the market seldom works - especially for the average individual. If you’ve ever been tempted to wait and “buy the dip” for massive gains or something similar - don’t. The best way to build a secure retirement fund is to slowly but surely make regular contributions without worrying about short-term market conditions.
Putting Your Financial Plan Into Action
We’d all love some secret trick to have a secure retirement magically appear, but there isn’t one. Long-term planning is the only safe and certain path to long-term security. While the keys to financial planning are all simple, it can sometimes be daunting to put all of the pieces together into a comprehensive plan.
If you do find yourself needing help with your financial plans, consider working with a fiduciary advisor. Not only are they financial experts, but they’re obligated to always act in their clients’ best interests. You can count on their advice to guide you to a safe, secure, and comfortable retirement.
Want to make sure your financial plans are on track? Download our 2021 Essential Retirement Guide to prepare for a secure and comfortable retirement.