Long-term Planning

This system allows you to visualize your weekly cash flow, so you can make informed purchasing decisions. As you pay down your bills and free up more income—and eliminate those bank overdraft fees—you will want to be strategic about how you spend these dollars.

Long-term planning is the next step—an advanced course in Banc Smartz. Here we’ll look briefly at some of the tools available to help you plan for your future.

Projections

What will your income look like in 5 years? 10 years?

• Factor in a 2% to 3% annual increase in salary.
• Note inflation. The current rate is 1.17%
• Consider whether your bills will remain the same, or if some will drop off the list.

Now consider your lifestyle. What will it take to maintain it?

• Will your mortgage be paid off by the time you’re ready to retire?
• What other expenses will be eliminated?
• Will new expenses arise?

Money Tool: Projections of Income & Expenses

Use the worksheet below to reflect on your future financial picture.

	Today (Age ___)	5 years (Age ___)	10 years (Age ___)	15 years (Age ___)	20 years (Age ___)
Salary (self)
Salary (spouse)
401K
Pension
Social Security
Savings

Retirement

If you ever have access to an employer-matched 401K, do it. A match is free money! Some employers match you dollar-for-dollar up to 3% or 4% of your annual salary. If you have this benefit, you need to figure out where you are financially and do whatever you need to do to contribute at least as much money as they will match.

The earlier you get started on retirement savings, the better. That’s when you have the power of time to compound your return. Think of it this way: If you’re contributing $25 weekly, at the end of the year, you’ll have saved $1,300 toward retirement. After 10 years, that adds up to more than $13,000. This calculation does not reflect any employer contributions or investment gains, which could push the sum significantly higher.

Bloomberg has a great 401K calculator.

Emergencies

Life inevitably throws us curve balls. A separate savings account for emergencies can help lessen the blow.

In cases where this isn’t possible, do whatever you can to buy yourself time to make an informed decision.

Whenever possible, have a rule not to adjust your accounts that day. Then you can turn the emergency into a “planned event” without being backed into making a rash decision.

Of course, emergencies are emergencies. I wouldn’t want to tell my spouse that I turned away the only furnace repair person available the day before Thanksgiving because we have a rule not to make snap financial decisions.

Insurance

My best advice for navigating through all of the insurance options available is this: Insurance is protection, a “risk mitigator.” Only protect what you need. Here are a few of my strategies for managing insurance:

• Auto: Carrying a higher deductible can save you 10% to 20% monthly; how much deductible can you afford? I carry the state’s minimum requirement and add an umbrella policy.
• Homeowner: Higher deductibles can save you here, too; in case of a disaster, how much can you afford to pay?
• Health: Except in unusual circumstances I recommend not doubling coverage; sometimes it’s advantageous to have one person cover the children and the other just carry individual health coverage.
• Life: Does your employer offer a policy? Or should you get your own? Check into riders and addendums that include options for return of premium, accelerated premium, and double indemnity for accidental death.
• Disability: You’re 7 to 10 times more likely to be disabled than lose your life, so I highly recommend carrying disability insurance. Also, you’ll only need to cover 60% of your salary because disability is not taxed.
• Medicare/Medicaid/Social Security: Offering basic coverage at age 65; check into AARP value-adds.

Investments

This is not an investment strategy book. Banc Smartz is a financial awareness tool, to give you basic tools to help you look at your money. Investments are a luxury item. They’re like a $50,000 BMW. If you never get to the point where you have one, it’s fine. The only source of retirement income for many people will be Social Security, their 401K or IRA.

I would tell no one to take $50,000 and invest it in a new BMW. As soon as you drive it off the lot, you’ll lose 40% in depreciation. Investments need to appreciate in value, not depreciate.

What Makes A Good Investment

• Invest to make money
• Invest to protect principal
• Buy low, sell high
• Invest in things that you can expect to be stable

Financial Planners

Hopefully, the information in this book has helped you realize that there is no one right way to manage finances. A successful financial management plan must be based on each household’s individual circumstances.

A financial planner, however, will approach you with a formula that implies “if you put in ‘x’ dollars, you’ll get ‘x’ dollars in return.” Most of their plans are not flexible, because you can’t get money out as your circumstances change without a penalty or associated fee.

Financial planners who are perceived to be “the best” in their field are in high demand by those with the most assets. Consequently, their threshold to take on new clients is typically set at a place where most Americans can’t use their services: a net worth of $500,000 or income of $250,000/year.

Banc Smartz was written to help you focus on tools and processes to help you get to the point in life that you can meaningfully address your own finances. Then, if you like, you can set a goal to attract one of the best financial planners.

In the meantime, continue to project forward. Use all the tools that you can to prepare yourself to start building your wealth.

Ideas for Potential Goals

Here are a few examples of goals to get your imagination juices flowing. The sky is the limit!

• Debts paid off
• House paid for
• Ability to provide for family
• A financial legacy for those left behind
• A portfolio with $500,000 to “play with” that attracts a top financial planner