As a practicing Certified Financial Planner™ for 10 years, I can say my best clients have a great relationship with money. And the earlier you start saving, the better your chances of living the lifestyle you want — financial planning it is not so much a financial goal but a lifestyle goal.
This is encapsulated in a recent Business Insider article, which showcases contributor Jason Vitug's trip driving 10,218 miles through 38 states in 30 days. He called it his “road to financial wellness.” Within his 11 "best" points of financial advice, he mentioned that “wealth is not measured by how much you spend, but by how much you save.”
I am in my thirties with a 1.5 year-old child and a beautiful wife and I can say we are saving as much as we can each and every month. Investing becomes much easier if you decide to start early. If you desire to amass $1 million and expect to retire in 30 years with a rate of return of 5%, then you will need to save $898 in monthly savings. However, if you receive a rate of return of 7%, you will only need to save $581 a month.
Where to Save
In terms of where an investor's investable savings go, after an adequate emergency fund — which should be enough to provide for six to eight months of living expenses — investors need to consider planning strategies. There is a lot of noise on which strategies are the best. Financial planning strategies can fail, but solutions are permanent. (For more from Blake Fambrough, see: How Women Face Unique Retirement Challenges.)
A permanent solution that young couples need to consider is life insurance. After my daughter was born, I immediately purchased life insurance to protect my family. Life insurance is designed to protect your loved ones if there is a premature death in the family. Which type of life insurance is the best? That depends on the financial goals and objectives of each couple.
For my family I purchased an indexed universal life insurance policy. Indexed universal life insurance is permanent insurance that offers great flexibility for premiums and adjustments for face amount. The indexed accounts are credited with interest based on the growth in one or more indexes and there is a guaranteed growth rate within the policy.
What I like best about the indexed universal life insurance policy is the fact that the cash value within the policy can be utilized as a way to generate tax-free income for retirement. In other words, this type of policy serves two purposes:
- The face amount provides protection for the family in the case of a premature death.
- The cash value growth over the years can generate tax-free income during retirement.
This is just one planning solution to where early preparation is the key to financial success. Be sure to meet with a CFP® who works in a fiduciary capacity with his or her clients to determine which investment strategy is in your best interest. (For more from Blake Fambrough, see: How Much is a Financial Planner Worth?)