Introduction
In the United States, many Americans are saving little or nothing to achieve their financial goals and for retirement. According to the Easy Financial plan, approximately 150 million Americans have little or no retirement savings. In addition, approximately 33% of Americans often spend more than they could afford. In 2005, the savings rate of many American households was -0.5%, and in 2006, the statistics revealed that the savings of many American households dropped to -1.0%.
Thus, the above statistics revealed that many Americans are not engaging in financial plan, and this shows that many American households are not even making financial plan for retirement. The US market report revealed in 2007 that less than 30% of American young people were not paying attention to their schools’ personal finance. Moreover, almost half of the American adults are not making any move to manage their finance or making any financial planning in order to build their wealth or make financial planning for their retirement. It is essential to realize that “buying a home, saving for retirement or for children’s education or even effectively managing the family budget now requires more financial sophistication than ever before.” (Federal Reserve Bank of Dallas 1).
The objective of this paper is to provide personal financial planning.
The personal financial planning is very essential to help an individual to plan for one’s life. It is essential to realize that an individual needs to have a solid financial planning in order to achieve financial goals for oneself and one’s family
To achieve solid financial planning, it is essential to define your current, short term, medium term and long term financial goals.
Current, short term, medium term and long-term financial goals
Financial goals are to plan towards what you want to do with your money at a specific period. Setting financial goals is very essential in order to have an idea of what you want to do with your money at present and in the future. Typically, by setting goals with the money, an individual will be able to plan as well as achieving the financial goals. A major advantage of setting financial goals is that you will have something tangible to fall on in your life. Thus, to set these financial goals, it is essential to get hold of a plain white sheet of paper and write it down. However, planning these financial goals could be categorized into current, short term, medium term and long term financial goals.
- Current term goals: This involves setting a plan on what to do from now to 3 months. Writing down this plan will help you to put money aside to achieve this current term goal.
- Short-term financial goal: This involves planning on what to be done soon. This planning generally involves planning on what to be done in less than one year.
- Medium term financial goal: This type of planning involves setting financial goals on what to be done in less than 5 years. Thus, to achieve this goal. One needs to adopt the method of saving towards achieving this goal.
- Long-term financial goal: This is to set a plan on the goals you intend to achieve in 5 to 10 years.
It should be noted that by planning the long-term goal, one should plan this goal in co-ordination with short and medium term goals. For example, by saving because you want to pay down payment in order to buy a house will be a way to achieve long term objectives of finally owing you house. ( Kapoor, Dlabay. Hughes).
It is essential to realize that to meet a long-term goal; you need to make some sacrifice. Thus, to meet these goals, there is need to examine cash and financial goal analysis in order to achieve these goals.
Cash & financial goal analysis
The cash and financial goals analysis involve creating a budget in order to meet these goals. It should be noted that an individual needs to prioritize these goals to choose the most importance one to follow. ( Easy Financial Plan).
“Most financial planners agree that it is almost impossible to work toward more
than two or three goals at once. If you have already identified what you think is
important, reaching the goals in order of importance will be fairly easy to do”.
( West Brook 3).
Thus, a person needs to examine his income. A person needs to take a critical look on what he earns per month, and examines the amount he intends to save from his monthly income. Typically, your income on monthly basis will be a good start. Meanwhile, you should list your monthly earning and monthly expenses. This will help you to create a budget for oneself and examine the amount of money that you will able to save in order to achieve the financial goals.
Having taking notes of the income and expenses, this will help you to choose the best plan of action. Typically, if the monthly expenses are greater than monthly income. There is need to eliminate all unnecessary expenses in order to focus on the more important goals. Thus, focusing on ones goals is one aspect. However, there is need to have basic discipline in order to achieve this goals. (GPS Life Plan, Easy Financial Plan).
Although, one has decided to achieve one’s goals by putting certain amount of money for saving. However, there are situation where it is essential to seek the assistance of experts in order to achieve once financial planning. For example, you may need the service of mutual fund, the insurance experts etc. However, there is need to ensure that it is important to approach the reputable financial experts in order to avoid fraud.
Meanwhile, it is essential to realize that there are some factors that can mitigate against achieving one’s plan. The type of mitigation is taxes, thus there is needs to discuss how one can achieve tax efficiency.
Emphasize on how to achieve tax efficiency
There are 25% of taxes that are deducted from one’s gross income yearly, which will lead to reduction of ones’ income, and reduction of ones income may hinder a person to reach one’s goal. Thus, there are certain strategies by which on can achieve tax efficiency in order to maintain or increase your income.
It is essential to realize that many large businesses in US.
“are rewarded with tax deductions because they create jobs and engage in
entrepreneurial activities that support individuals and government. But individuals
are awarded few tax breaks because they don’t create jobs and don’t take risks
that add substantial value to the economy”. ( Buzz 2).
Thus, a person can take advantages of tax deduction just like these businesses. The strategy is to invest in some of these companies in order to qualify for tax deduction.
Another strategy to enhance tax efficiency is to reduce adjustable gross income. Typically, adjustable gross incomes are subject to taxation. Typically, the more adjustable gross income you earn, the more tax you pay. Thus, the best strategy to reduce gross adjustable income is to contribute your income to 401(K) employer’s pension, which works for your retirement plan.
Having analyzing how to achieve tax efficiency for your benefits, it is essential to discuss the investment analysis in order achieve financial benefits.
Investment analysis
Investment is very essential to build wealth. To invest in the right business is a road to build your financial freedom. However, it is essential to seek for right information before investing in any type of business.
To build wealth, one needs to adhere to simple formula:
Assets – Liabilities = Net Worth
To achieve reliable investment, a person must be able to increase one’s asset and reduce one’s liabilities in order increase one’s net worth, which is equal to investment.
The strategy to increase assets is to obtain savings account, and put certain amount of money monthly in the account. Moreover, there is need to enter into retirement plan to have assets to fall on after retirement. In the United States, many companies offer their employee’s 401k retirement plan. Thus, it is essential to put some part of your adjusted gross income into this retirement plan to benefit from 401K.
To increase your investment, you should try to invest in stock and bonds. At this point, it is essential to seek for the advice of financial experts before investing in stocks and bond in order to invest in the right stocks and bonds.
The final strategy to increase your investment is to invest in a house. It should be noted that buying a house is a good investment. Especially, if one decides to buy a house that can be used for business purpose. Moreover, there is tax deduction on estate in case of depreciation (Federal Reserve Bank of Dallas).
It should be noted that you should minimize spending on liabilities in order to increase your net worth. Thus, owing money to another person or organizations is a liability, and debt is referred to as liability. Some of the example of liabilities is home mortgage, car loan, credit card, medical bills and student loans.
Thus, it is essential to minimize engaging in all these liabilities because if a person is engaging in these liabilities, these may lead to decline in assets.
It should be noted that having big screen, boat or cars might be considered as assets however, these assets cannot create wealth because they cannot increase in value or earn money for you. Typically, by reselling these items, they will drop in value, and they cannot create wealth for you.
However, it is essential to plan insurance in order to mitigate the risks against your investment.
Insurance plan
Insurance plan is essential to mitigate the risks against unforeseen circumstances. While some insurances are required by law. Some insurance are optional. You should try to insure your investments that have the high values in order to mitigate the risks. Typically, you should seek for the advice of the financial experts on the best investment to insure and try to look for the best insurance house before you insure.
Meanwhile, it is essential for plan for retirement in order to have something to fall on in term of investment.
Retirement plan
The retirement plan is very essential, and you should save towards achieving your retirement. There are strategies to employ to achieve your retirement plan.
First, you should participate on the 401K employer’s pension. You should contribute some percentages of your income towards 401K employer’s pension.
Moreover, you should learn about the Social security administration (SSA) benefits. The SSA provides you 40% of your pre-retirement earning.
Moreover, you should open and save in the Individual Retirement Account (IRA) account. The IRA account helps you to invest towards your future. For example, if you put $1,000 in IRA account when you are 25 years, and the interest is 7% per annual. Your money will reach $147,913 when you reach age of 65. Thus, you can see how IRA can benefit you to achieve you retirement objective.
Meanwhile, it is essential to plan for the estate planning in order avoids conflict within your family.
Estate planning analysis
There is based on the various aspect of estate planning.
- No Will: This means that your estate will be passed to your heirs based on the law of descent and law of your state.
- Basic Will: This means you made a will that your estate could be passed to your spouse and your children.
- Pour-over: This means you distribute your estate to a trust.
Other methods of making estate plan are through living trust. (Findlaw).
Conclusion
To enhance effective method of creating financial planning, it is essential to start planning when one has finished a college in order to reap the benefits of the financial plan. The best age to start embarking on one’s financial planning is the age of 25 in order to achieve the maximum benefit of financial planning.
Works Cited
Buzz. The Ultimate tax Planning Strategies. Buzz Inc. 2009.
Easy Financial Plan. Developing a Financial Plan For Your Future. Easy Financial Plan.2008.
Federal Reserve Bank of Dallas. Building Wealth A BEGINNER’S GUIDE TO SECURING YOUR FINANCIAL FUTURE. Public Affaire Department.2009.
Findlaw. Advantages of Various Estate Planning Tools. TIME. 2009.
GPS Life Plan. Welcome to the FinancePlan. Minnesota State Colleges and Universities. 2008.
Kapoor, Jack, R. Dlabay, R. Hughes, R.J. ‘Personal Finance’. McGraw-Hill/Irwin, 2007.
West Brook, Etta, M. Setting &Achieving Financial Goal$. Agricultural Extension Service The University of Tennessee. 2008.