We all know that no matter how carefully you plan your flight, changes happen and sometimes you have to adjust. This idea applies to more than just flight schedules and flying the magenta line. Your financial plan also requires room for contingencies.
A good plan will map out the course you expect to take through your career and into retirement, and when those non-normal situations arise, such as medical bills, repair costs, or other unwelcome surprise expenses, it will provide you with the flexibility to respond.
Have Funds Available
One of the cornerstones of a flexible financial plan is the Emergency Account (not the Non-Normal Account!). You should consider funding a bank account that is reserved for emergency use only. This requires discipline, especially when you're just starting your career. A very common rule of thumb is to set aside an amount equal to three to six months of your non-discretionary spending in this account.
In addition, learn to exercise restraint in building debt. A car loan and a mortgage are often necessary, but you should keep these within budget constraints that you set before you begin shopping. Similarly, you should strive to pay off your credit card debt each month, so you have credit available for true emergencies that may exhaust your emergency account.
Your Investment Assets
When you invest, you need to diversify your portfolio. Market forces will fluctuate over time, and individual stock investments often create higher risk than you may be willing or able to responsibly take. Diversifying your investments across different asset classes actually reduces the overall risk of your portfolio. It reduces that roller coaster feeling you sometimes experience when the markets are volatile.
Your goal should not be a home run investment, but rather steady growth over time. Babe Ruth may have had 714 home runs, but he also had 1,330 strikeouts. You don't want to take chances with your nest egg; when retirement arrives, a lower-risk investment strategy helps you avoid late financial struggles.
Work With Your Advisor
A good financial advisor will help you map out the journey to your financial future. Your advisor will take into account many factors, including your current income and expected growth over time. If done properly, your plan will include the flexibility to adjust for “non-normal” situations and to take advantage of opportunities that may arise. A good plan not only takes into account your goals, it must also contemplate the potential pitfalls ahead.
Although the initial meeting with your advisor is crucial, it is the continuing interaction that provides the most value. Meeting with your advisor at least annually will allow them to evaluate your progress so that you can make minor course corrections along the way, thereby avoiding large changes as you approach retirement. Staying disciplined in both following and reviewing your financial plan will allow you to progress confidently into your retirement years.
For guidance on dealing with financial “non-normals,” contact Retirement Advisors of America to speak with an experienced advisor.
Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by Retirement Advisors of America following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, Retirement Advisors of America accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security.