Your Financial Future

Student Editor: Andrea G.

Jake is normal kid who grew up in a small suburban area in California. He had a normal childhood living with his parents and his brother in a middle-class neighborhood. During his high school years he worked a part-time job at a Chinese restaurant, before attending college in San Diego four hours away. Luckily, he was able to obtain a summer internship at a big firm, which eventually landed him a full time position after graduation. He graduated college, and began working at the firm in Milwaukee. He married, had three children: Emily, David, and Alexander, and continued working for the firm for many years as he climbed the corporate ladder. He was able to retire after many faithful years at the firm, and was able to collect a modest, but decent retirement fund through the firm. Today, his grand-children are growing up, he feels accomplished with his career, but he is concerned about other things that he was never able to accomplish in his life.

You see, Jake is like many of us in this country who live a passive financial life, always dependent on the current situation. Like many of us, Jake was never taught to plan and set goals for his financial life. Therefore he was deprived of being able to save up more for trips with his family, being able to set up a budget that will help him pay off his debts sooner, or being able to invest and collect more assets for retirement. What Jake was missing was a process that he could engage in to achieve long-term financial success while having a quality standard of living. This process is called financial planning, where we actually set goals for our finances in attempt to manage our money in a positive manner and overall increase our net worth. 

The first part of financial planning is to create financial security through savings. Individuals should have at least six months of their monthly expenses in savings. This can be a tough feat to conquer, but through the use of tools like budgets and automatic setups, we can begin to make a conscious effort to save 10-20% of our net income each time we are paid. For instance, if Jake would have saved a set portion of his income as a teenager, he would have been able to complete his savings by the time he went to college! It is important to have the hobby of saving money early on in life, because this skill becomes really useful by retirement. When we consider the time value of money, retirement money can really grow if we start early enough, which is something Jake could have considered earlier in his career. By saving money little by little, but remaining constant, we can soon have the financial security that will allow us to be more flexible and risky with our money without becoming victims of great consequences that could damage our standard of living. 

no budget

The second part of financial planning is managing your money in a positive matter, especially when it comes to debt. Once you have financial security, you can begin to invest in assets to build up your wealth. Note that investing does not necessarily mean investing in the stock market, but it could also mean investing in things like a house, car, business, etc. Invest in something that will increase your wealth. Nevertheless, investing means that you have to involve yourself in debt, and without careful money management tools, like a spending plan, you can borrow more than you can pay back. Make sure that you limit your debt to at most 20% of your annual net income, so that you can maintain a good standard of living while still increasing your wealth.

Lastly, use SMART goals to set goals for your financial success. Think about the things that you would like to have or do throughout your life, and implement those steps toward achieving those goals in your budget. For example, you should save for financial security and retirement, but perhaps you would like to attend a certain college or go on a specific trip with your family. Stop thinking about your finances in a present tense, and start taking actions towards your financial future. Take the front seat, grab the steering wheel, and drive yourself to a life of financial success!

Links/References:
Money management/ Budget Tool: https://www.mint.com/
SMART Goals: /jungle-talk/do-it-the-smart-way