Planning Your Financial Future

Posted on Thursday, August 6th, 2009 at 8:02 pm in Financial Planning

There are times when we all wish we could see what the future holds for us. That’s impossible, of course, but you can still take steps to influence how your life will unfold in years to come. Financial planning is a good example of how you can think ahead to increase the likelihood that you’ll achieve your goals further down the line.

Don’t be scared by the thought of setting up a plan for your future financial security – it’s actually not too different from planning a birthday party, a vacation or a trip to the supermarket. Basically, you decide what you want your financial situation to look like in 10, 20, 30, 40 years, and then you figure out how to get there. You might want to consult a professional financial planner, or you can try to do the whole job yourself.

Start by setting out some milestones for yourself. Ask yourself questions such as: When do I want to buy a house? When will the kids start college? When do I want to retire? What am I going to do after retirement? Start a small business? Travel? Get a part-time job? Move to Costa Rica?

When it comes to your retirement, you’ll need to ensure that you’re putting away enough money now to live a comfortable life when you’re no longer working. A certified financial planner (CPF) can advise you on how much you need to contribute to your retirement plan in order to enjoy the lifestyle you want upon retirement.

You can also make some approximate calculations yourself. To get a rather rough estimate of how much you’ll need to live on after you retire, take your current annual salary and multiply by 20. So, if you’re earning $100,000 a year, you’ll have to come up with around $2 million. The figure would be $800,000 if you make $40,000 now.

Sounds like a lot of money, doesn’t it? Most people don’t realize just how much their retirement is going to cost, particularly as people are living longer, healthier lives these days. Don’t forget, though, that your retirement money is invested in various financial instruments with a view to growing the fund every year. That means that part of the money you’ll be living on in your golden years will come from investment returns (and is therefore a bit unpredictable), and the rest from your own monthly contributions. The tax advantages of various types of retirement plan also help to boost the cash you’ll receive.

The important thing is that you’re paying in to a retirement fund through your employer, or that you set up your own plan if you’re self-employed. It’s never too late to start your nest egg if you don’t have a pension plan already. Once you’ve determined what you would like your later years to look like, talk to a qualified financial planner who can help you plot a course to the financial future you want. So you see, it is possible to influence the way things turn out for you after all.