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Back to Basics: Financial Planning

April 20, 2020

My wife and I took our daughter, Emmy, for her 15-month health check up the other day. After her doctor finished the assessment, she told us that Emmy is a very healthy little girl and that she is still in the 98th percentile for height, which she's been in since birth. For those of you who know how tall my wife and I are, as well as the entire Gariano family, this should come as a massive shock. I don't think we have a family member over 5'10, and thats being generous. We always blame it on the water in New Jersey, but that's a conversation for another day. I considered purchasing a basketball hoop for the living room so she can work on her dunking, but I don't want to get ahead of myself.

In all seriousness, I'm truly thankful for Emmy and my family's health, which is the only thing that matters these days. Thank you again to all the healthcare and essential workers keeping this country afloat. 

Now...

Financial Planning covers a number of topics, but we’re getting back to basics today with these 4 main areas:

  • Budgeting – Spending and Saving 
  • Investing
  • Retirement Planning
  • Risk Management/Insurance

Now, you don’t have to become an expert, but I’d like to make you dangerous enough to handle yourself as a fiscally responsible adult.

 

1. Budgeting

Cash flow is the backbone of every financial plan. It can set you off into the realm of financial independence or take you into the depths of debt and despair. A bit morbid, I know, but I’m trying to make a point here.

On a monthly basis, you should know three things:

  1. How much income is being brought in
  2. How much is being spent
  3. Where it is being spent

Knowing your monthly cash flow amount will help determine how much you can save towards future needs and goals or where you may need to cut back on spending. 

 

2. Investing

I’ve said it before and I’ll say it again – Investing does not have to be complicated.  Everyone is looking for the best investment out there, but they mostly look at past performance to make this determination.  This truly has very little bearing on how well it will perform going forward.

Your investments should be geared around your timeline.  I like to use the 4-bucket approach to investing:

Time Period

Type of Account

Approximate % of Equity/Bonds

Immediate Needs

Checking

Cash

Years 0-2 + Emergency Fund

High Yield Savings

Cash

Years 2+

Non-IRA

50/50

Retirement

401k/403b/SEP/IRA

70/30 or 80/20 or 90/10

There’s nothing wrong with having some alternative investments in your portfolio, such as real estate or commodities (please stay off the crypto bandwagon unless you know what you’re doing), but that shouldn’t be the focus unless you are an expert in those areas. A globally diversified portfolio with ETFs and/or mutual funds will give you access to many different asset classes, while making sure you are well diversified and not over exposed in any one area. Picking individual stocks is like gambling unless you know what you’re doing. 

 

3. Retirement Planning

Pension plans have gone the way of the birds and there is some uncertainty around Social Security in the future, which makes saving for retirement that much more important.  Employer sponsored retirement plans, such as a 401k, have made saving for retirement turn key for most employees.  If you don’t have access to a 401k plan at your employer, or you’re self-employed, open a Traditional or Roth IRA and get saving.  Aim to save 15% of your salary for retirement annually

 

4. Insurance

Check out this post for the different insurances you should have, but for now I just want to stress the importance of insurance.  You’ve made a budget and cut down on spending. You have your emergency fund at the appropriate level and have begun investing properly. Now it’s time to protect that amazing financial base you’ve set.  

Evaluate your financial situation and close the gaps.

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If you have a specific question or you’d like clarity on a particular issue, feel free to reach out. I’d be happy to help. 

Robert.A.Gariano@ceterafs.com

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Fun Fact: According to a 2017 report published in Nature Communications, there's evidence that penguins once stood close to 6 feet tall and weighted more than 200 pounds.

*A diversified portfolio does not assure a profit or protect against loss in a declining market.