Investing in Yourself
In this article, I put it all together for you. The last part of our S.M.A.R.T. InvestHER series is about investing in yourself. Ideally this part of the series is actually first and foremost. We've talked about your IPS, the elements of an investment portfolio, and the Savings Avalanche. But none of this matters if you don't have a plan for how you will take care of yourself and your goals.
A financial plan puts everything together and gets you organized. A well-thought out plan has two main components.
The first component is the matching of your goals to your assets. Many people find this the most "fun" part of building a plan. Imagine all of the goals in your life like retirement, travel, vacation homes, weddings for the kids or grandkids, and so forth. What do you want your life to look like in the future? Who will you be with? What will you be doing? This exercise may take time, and it will absolutely change over time. A financial plan builds in the flexibility for life's changes.
Think about your short-term, mid-term and long-term goals. Use your imagination, talk to your family members, and write it down on paper. It's been said that you are more likely to achieve your goals if you write them down than if you keep them in your head as a wish or a dream.
Short-term goals are anywhere from 1-10 years down the road. Many times it will be much easier to imagine your short-term goals than your legacy goals.
Mid-term goals are generally 10 years through the end of your life. This time period usually spans your retirement years.
Long-term goals are generally from the end of your life down to your beneficiaries. How do you want to pass on your legacy to your heirs or charities?
Then we get to work establishing your net worth. Remember this formula: Net Worth = Assets - Liabilities
Assets include:
Checking and savings accounts
Retirement Accounts
Real Estate value
Collections like jewelry, art, etc.
Investment accounts
Liabilities include:
Credit Card debt
Mortgages
Personal Loans
Student Loans
Car Loans
Business Loans
What assets and liabilities do you currently have? How do each of your assets work? For example, a real estate property will function differently from a stock option from your employer. Do you know the value of each? Do you know how to handle it? We match each of your assets to your goals. Some assets will be put to work to accomplish your long term goals, while others may be in your portfolio to support your short term goals.
Secondly, a solid financial plan accounts for what I call the "5 D's" - Disability, Death, Divorce, Disagreements and Disasters. Without a financial plan in place, you are less prepared to handle unforeseen circumstances. A financial plan lays out all the "what-ifs" that keep you up at night. "What if my spouse passes before I can collect Social Security?" "What if I become disabled?" "What if COVID happens all over again?" Life does not go according to plan, but by not thinking about a contingency plan, the risk of an event throwing your life off course is very real.
We look at your goals and your assets in order to determine the "gaps". If your goal is to retire at a certain age with a particular lifestyle, you must monitor your progress toward this goal. Make a plan for how you will close the "gap" between what you have in your retirement account and how much you need in your retirement account. There are different "levers" you can pull to close the gap between your goals and your assets. Sometimes the answer is to save more, or invest differently, or look at another solution. This is where working with a financial planner is helpful. We can recommend the best "lever" to pull for your situation.
Remember that life is fluid and will change as time progresses. A financial plan does not mean that your goals or net worth are set in stone. In fact, I always build in cushion for changes in a financial plan. It merely gives you a guiding light by which to base your financial decisions and set yourself up for a smoother ride.
Invest in the time it takes to build yourself a solid financial plan. Your future self will thank you for making this smart decision today. Don't let one of the "5 D's" throw you off course. If you're looking for a professional to help you craft a custom financial plan, give me a call.
I'm Christina Gamache, founder of Audax Wealth Management, and I help women leaders make sense of their complicated financial lives.
Until next time, be well.
