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How To Plan For The Future Without Sacrificing The Present

Biphoo

15 Sep 2017

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How to plan for the future without sacrificing the present

Future-mindedness is a personality trait that scientists and psychologists have puzzled over for centuries. Studies like the “marshmallow test” show that people tend to hold one of two primary viewpoints (with lots of shades of grey): Those who prioritize the future at all costs, and those who live for the moment.

When it comes to planning for the future from a financial perspective, there’s a whole new layer to add into the equation. Planning for retirement can feel like throwing hard-earned savings into the ether for an ambiguous “future self” you can hardly imagine – especially when there’s an enticing social activity or purchase on the horizon that’s guaranteed to provide instant gratification.

But the idea that saving for your future means completely sacrificing your present is a fallacy. The truth is that having a plan in place to ensure financial security provides some peace of mind –and there’s immediate value in that.

Seeking professional advice is often an integral piece of the process. Certified financial planners Neal Frankle and Rich M. Groff II shared some of their top pieces of advice for planning for the future without fully sacrificing the present.

Think about goals on a three-tiered scale

Frankle said the first step to developing a viable financial plan is to define goals on three levels: Short-, mid- and long-term. Then, assign concrete value to each of those scenarios.

“Put a price tag on these goals,” he said. “So it’s not, ‘Well I want to buy a house or I want to retire.’ It’s putting numbers behind the dream (i.e. ‘I want a house and I will need to have $100,000 in 3 years to do it’).”

Placing these goals in order of priority and investigating the relative importance of each is the next step. Frankle said people should ask themselves, “How will I feel if I achieve this goal? How will I feel if I don’t?” From there, assess daily spending and expenses. See how much you can afford to save – and automate these savings, so they come directly out of your paycheck each month.

Think of your finances as you would your health

Especially for “now” thinkers, investing is closely tied to risk-tolerance. As with a doctor prescribing medicine to patients, Frankle prefers to prescribe incremental steps.

“If someone is very risk-averse, even if they should be more ‘growth-oriented,’ I’ll put them in a balanced situation for three months or six months, and see how they’re doing with it,” he said. For savings plans, it’s a similar process: Start slowly, and assess based on perceived rewards. “Once people start getting into the pattern [of saving], it becomes kind of fun – and there’s reward in it. Other things shift. Maybe you don’t need to go to [coffee] every day or go out to dinner four times a week.”

Revisiting the doctor analogy, Frankle said that periodic assessments are paramount. People should sit down with an advisor every few months to discuss how they’re adjusting to a new savings plan – and note any lifestyle restrictions they’ve encountered. If these restrictions feel suffocating, it’s possible that the plan needs tweaking.

As with any positive lifestyle change, it doesn’t take long for rewards to become evident. With financial stability generally comes greater peace of mind, more surety and reduced stress levels – benefits that can have subtle but immediate impact on your overall wellbeing.

Don’t put all your eggs in one basket

On the opposite end of the spectrum of cautiousness, Frankle warned that one of the worst mistakes you can make is to throw all of your money into one attractive technology, stock or fund. This is yet another reason why seeking advice from a professional is important: Certified Financial Planners (CFPs) are highly skilled at helping you decide a path for building a diversified portfolio that’s appropriate for your individual situation.

“You’ve got to manage both the intellectual and the emotional side of it,” said Frankle. “Respect your feelings and respect the process – and that’s going to be more important over the long run to your financial success than picking the right fund once or twice.” Moderate-growth broadly based index funds, he suggested, are a great place to start.

Groff elaborated on the sentiment that it’s important to have a diversified approach to your financial goals. When planning for the long term, another key consideration is how you’ll generate income once you reach retirement age.

An annuity, for example, is one option – in addition to social security and pensions– that can provide guaranteed income in retirement. Some annuities are not subject to market fluctuations, so they’re a solid option for people who want a steady stream of income payments for as long as they live, or who tend to err on the conservative side of the risk spectrum.

These preemptive measures, when employed with the aid of a professional, can provide a great deal of financial security – without a huge amount of sacrifice in the here and now.

Don’t go it alone

Frankle explained that there are three key factors that differentiate retirement planning today from what it was, say, ten years ago: For one, people are living longer, which means that it’s more important to have a guaranteed income plan in place for your later years. Secondly, people today need to rely on their own resources, as opposed to social security and pensions – the latter of which is increasingly rare. Lastly, the world is changing quickly – so it’s especially important to consistently adjust your financial plan and discuss its relevance and performance with a financial professional.

In his experience, Frankle says, “for most people, their lives are very different from how they imagined they’d be. Your career may change dramatically, your situation may change dramatically, the world is probably going to change dramatically,” he said. “You’ve got to keep revisiting your plan and asking, ‘Am I still on track; have things changed?’”

When it comes to making nuanced decisions about your finances – and your future – there’s plenty of advice available on the internet. But at the end of the day, there’s no substitute for real, human-to-human counsel tailored to a person’s individual needs.

When building a plan from the ground up, seeking guidance from a financial advisor is the most prudent way to make educated decisions about both your short-term and long-term goals – and it’s never too soon to get started.

This material should not be interpreted as a recommendation or as fiduciary investment advice by Brighthouse Life Insurance Company, Brighthouse Life Insurance Company of New York or Brighthouse Securities, LLC.

Source:- https://www.usatoday.com/story/sponsor-story/brighthouse-financial/2017/09/14/how-plan-future-without-sacrificing-present/105354588/

Biphoo

15 Sep 2017

507 Views