Financial Planning
by Ellise Walsh

Planning for your financial future and putting away money for a rainy day is more important now that it ever was. The term financial planning can be used to cover a variety of subjects, everything from retirement planning to buying a home to starting your own business. Whether you prefer to handle your financial planning on your own or engage the services of a financial planning professional, the most important part is making the decision to get a handle on your finances and take charge of your financial decisions.

Saving up money and building a good financial base can be very difficult. Most people are lucky to have anything left over at the end of the month after all the bills are paid. There is no doubt that putting away a couple of bucks every month will take some scrimping and determination on your part, but the power of time and compounding will help those couple of dollars a month grow into a substantial nest egg over time.

The most basic part of a good financial plan is creating, and sticking to, a realistic monthly budget. You would be surprised at the number of people who have never taken the time to create a simple budget. Without a budget, you may have no idea where your money is actually going, and consequently no idea how to save enough money to invest each month. Once you have created your budget, you may well be able to find ways to save at least enough money each month to invest in a good mutual fund. Many mutual funds will allow you to put in as little as $50 a month. That may not sound like much, but after 20 or 30 years of growth, those $50 monthly payments can grow to a sizeable investment account.

Another good way to invest is to sock the money away before you even see it. This can make your financial planning easy and painless because the money just comes off the top of your paycheck each week. Many employers offer a 401(k) or 403(b) plan to their employees for retirement. These plans allow employees to have a specific percentage of their salary diverted to an investment account to save for retirement. The first great thing about these plans is that the money diverted is not taxed, thereby lowering your overall tax bill. The second great thing about these plans is that most employers match a percentage of the employee’s contribution. And the third great thing about these plans is the power of compounding over time. By just leaving that money alone and adding to it for 30 years, you will be surprised at how fast it grows into a substantial retirement asset. A good retirement program should be the cornerstone of your financial planning.

Once you have funded your 401(k) plan or 403(b) plan funded, and you have created your budget to recover that extra money that used to slip away, the next step in your financial planning is to set up an account with a quality, low cost mutual fund. Many mutual funds will allow you to open an account with as little as $1,000 and $50 monthly deposits. Even with these relatively small investments can grow to significant sums over long periods of time.

It is generally best to invest in mutual funds that do not charge a sales fee, known in the mutual fund industry as a load. There are no load funds available for virtually every type of investment, so there should be no need to pay a sales fee and see some of your hard earned money coming right off the top. You will want to get a good idea of the long term performance of the fund you choose, of course. While past performance is not a predictor of future results, a mutual fund with an excellent long term track record is likely to continue its good performance in the future.

One of the best ways for the first time investor to get started is by using an index fund. As opposed to a managed mutual fund, an index fund simply buys all the stocks in a particular index, such as the Standard and Poors 500 or the Wilshire 5000. One benefit of these types of funds is that their annual expenses tend to be very low, since there is no manager to pay. These funds will perform in line with the overall index to which they are tied.

Whatever vehicles you choose for your financial planning, the most important thing is that you are planning for your financial future. Making regular investments in your mutual funds and retirement plan will pay big dividends down the road. Getting started is the hardest part. Once you have your financial plan in place, you will wonder how you ever lived without it.

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