October is Financial Planning Month

Every year, many people wait until December to make financial decisions such as tax-loss harvesting, required distributions, 529 contributions, or account openings.  While the holiday season can be a great reminder of the approaching new year and proper budgeting, waiting until then to have discussions with your financial professional about your plans can make the most wonderful time of the year extremely stressful! This is one reason why October has been perfectly chosen as the National Financial Planning Month.

Let’s use this month to celebrate the importance of proper financial planning and share some tips and tricks on how to get your financial planning in order. 

Create a Budget

The first step in understanding and taking control of your finances is creating a budget and sticking to it. Everyone’s budget will look a little bit different, but the 50/30/20 rule is a good place to start.¹

The 50/30/20 rule states that 50% of your budget should go to essentials, such as rent, food, and utilities; 30% should go to wants, such as entertainment or travel; and 20% should go to savings and paying off debt.

There are also a lot of helpful apps to help you stick to your budget, such as Mint, You Need a Budget (YNAB), and Honeydue for budgeting with a partner.

Be Smart With Your Debt

Not all debt is created equal, meaning debt isn’t always a “bad” thing if you are smart with it. For example, taking on a car loan and making all the payments on time can help you afford a car if you don’t have enough money to pay cash and can help you build up your credit score. But be wary of high-interest debt because that can get you into problems quickly.

Understand Interest Rates

Speaking of interest rates, it’s important to understand how they impact your finances and debt. Depending on the current market and your credit score, mortgage rates generally hover between 3% and 6%. In contrast, the average credit card interest rate as of March 2022 was nearly 20%. With that high of a rate, you can see how getting into credit card debt can quickly pile up and make it hard to take control of your finances.^2,3

In addition, understanding interest rates can help you make strategic financial planning decisions. Rather than paying all cash for an asset (e.g., a car or a house), if you can get a low-interest loan, you can consider investing the cash you would have spent on an investment vehicle that could generate a higher return than you are paying in interest.

For example, if you have $10,000, you might consider putting $2,000 toward a car and financing the rest at a 2% interest rate while investing the other $8,000 in the S&P 500, which has delivered a compound average annual growth rate of 10.7% per year over the past 30 years.⁴

Get Covered by Insurance

Lastly, another thing you can do to celebrate Financial Planning Month is to ensure that you are properly covered with the right insurance. If you have dependents or people relying on your income, life insurance is a must-have. Life insurance can ensure that the people you love will be taken care of if something were to happen to you. In addition, you should definitely consider renters or homeowners insurance, car insurance, disability insurance, and health insurance.

If you need assistance with health insurance, especially Medicare, the sooner you can schedule an appointment the better, as Medicare season ends on December 7th. Feel free to call our office today to arrange a meeting with one of our insurance experts. 

There are lots of things you can do to take control of your finances for National Financial Planning Month, and these are just a few. Kick off the holiday season by strengthening your financial fitness!