Short and Long Term Financial Planning Strategies

financial planning, life insurance, strategiesWhen strategizing both short and long term finances, it is necessary to contemplate the risk of loss and to plan for it in financial terms. For example, life insurance is an investment when considered as an income replacement.

Include Life Insurance

Life insurance protects your family from the loss of income. When you retire, that income is no longer generated, and so the need for insurance is reduced. Term insurance is also a great asset because it’s relatively inexpensive. To determine how much term insurance to carry and how long to carry it, there are detailed diagnostics. First you need to determine the amount of money you ought to have set aside for retirement given your age. A rough ball-park figure is to have 7 to 10 times your earnings if in the 40 to 55 age bracket, intending to retire at age 65.

With term life insurance, the coverage can be figured dependent on those figures and for the appropriate term. Another aspect you might want to consider is to maintain coverage independent of your employer. This eliminates one of the stressors if you lose your job. In addition, Term Life insurance is often less expensive when purchased independently.

Mortgage Payoff Pays Off

Another extremely powerful financial planning strategy is to pay off the mortgage – or mortgages – on the home. Paying some ahead each month serves the overall “money in the pocket” goals profoundly. An excellent exercise is to spend some time with an amortizing calculator. You don’t have to pay huge amounts ahead to have huge benefits. Try simply adding $100 a month to your payment in the amortizing calculator and see the thousands of dollars saved, plus an early pay-off of the loan.

Also consider refinancing the mortgage. If you intend to stay in your home, now is the time to seriously look into refinancing options. It doesn’t take long for refinancing fees to be covered if the interest rate is reduced by a couple of points. In addition, there are some lending institutions that waive various fees to encourage and stimulate business. It’s a win-win scenario all around. Interest rates in the 3-point-something range, or in the 4-point-something range can be extremely attractive.

If you have a first and a second mortgage, given the currently remarkably low interest rates, it might be the wisest procedure to roll the two loans into one, very low interest loan. Take the all-around advantage and reap the benefits in multiple ways with this plan. Not only will you reduce your monthly outflow, but, again, if paying ahead, that is to say, to continue to put the same amount of money toward the mortgage that you previously did, even if the required payment is lower, you come out ahead on multiple headings.

Plus there’s simply the reduction in the headaches of paperwork. One payment, imagine that! And, again, there’s the safety net that if something unexpected comes up, you’ve reduced the required payment, and only the required payment needs to be made.

Along that same line is some consideration regarding the mortgage term length. Many people think it’s the best idea to go with a 15 year term, and there’s nothing wrong with that, because, in the end, you will pay many thousands of dollars less than a longer 20 or 30 year term. But, if you know you are self-disciplined, getting a 30 year loan with lower monthly payments, but paying it off as if it is a 15 year loan, covers all the bases. If all is smooth sailing, the loan gets paid off in 15 years and you save the money just as if you’d originally taken a 15 year loan.

However, if unforeseen hard times hit – and we’ve all seen of late and historically that hard times can hit – you have only the lesser 30 year payment. It makes unexpected events much easier to ride out. After you’ve sailed through the storm while others are losing their homes, you can get back on the 15 year voluntary payment plan, home and finances intact. Make no mistake about it, this approach does require discipline. But isn’t that what short and long term financial strategizing is all about?

College Savings

The next big financial planning terrain is college education for the children. This is a plan that must be started early and adhered to rigorously. Too many people borrow from these savings all along the way because 18 years seems so far away. And then, suddenly, that day has arrived and the high school graduate is told to find a job because there’s only $4,000 in the college fund, pretty much the same as was there 10 years ago.

This can be a huge shock to everyone – parents, child, or school advisor. Unlike some countries that consider college to be as essential as secondary school, here in the US and in much of the western world, we have to finance college education, and it is extremely expensive. It’s also a good idea to recruit the child into the money savings plan. Having your children put aside a certain percentage of their summer job earnings for their college educations, just as you are setting aside money, will communicate clearly that your children’s futures are in their own hands to some extent. This learning experience will contribute to their being more serious and responsible when they get into college instead of thinking it’s all a free ride.

The details of the precise bottom-line amounts in actual dollars that need to be saved on a monthly basis for that college education may need to be hammered out with the assistance of a financial advisor. But it’s not rocket science to learn what a year of college educational expenses are at a preferred college, extrapolate what that year of education is projected to be when the child starts college, and simply do the math.

This is the place for a potential money egg if your child applies for and receives grants and/or scholarships. The financial benefits of grants and scholarships need to be seriously researched beginning in your child’s junior year in high school. Really dig into this research as there are many scholarships that almost no one applies for, and numerous grants, as well, that qualified individuals never even know about. Places to explore are if your child is a fraction Native American, if a parent is a military vet, and other such nooks and crannies of financial advantage. Don’t expect college or school advisors to know all this information. There are huge volumes of it, and they are already over-worked and over-extended just trying to keep up with the work load they have.

Partner with Your Spouse in Financial Planning

All of these financial considerations need to be thoroughly engaged in by both partners in a relationship. A study revealed that only 41 percent of the people surveyed handled these kinds of major life-important investment decisions together. And the number may well be below that for the general population. It’s to everyone’s advantage to be thoroughly apprised. Not only for the obvious reason if one is left alone with all of the financial responsibilities and none of the know-how, understanding, or information, including, perhaps, not even knowing where paperwork is kept, but also for the pragmatic reason that two heads are better than one.

In a lot of relationships it’s usual for one person to be more money-savvy and focused and the other to prefer not to think about it except in a daily budgeting way. But, that’s exactly the point, both of these “organizational styles” are important. Each person has the ability to contribute to the over-all programming and planning. In addition, this same study noted that only 7 percent of the couples said that they felt either one of them was prepared to assume the role for retirement planning.

Given that the life expectancy for women is three years longer than men, it is likely that more women will have to manage their retirement funds on their own, even though more men are the ones who have developed the retirement plan.

Again, both parties in a relationship need to know where all the important documents are kept – in a safe place away from flood, fire and theft. There needs to be a plan each can effect individually if necessary.

Resolving Conflicts

Disagreement is the spice of life and many couples are together through decades because the spark of argument makes life interesting. However, another study points out that 33 percent of the people interviewed said that they didn’t agree as a couple on where to retire, or they didn’t even know when they planned on retiring, and fully 62 percent of the people approaching retirement couldn’t even agree on when they would retire. Almost half of the couples – 47 percent – stated that, although they were approaching retirement, they didn’t agree on whether to work or not to work in retirement.

So, not even being apprised of, or agreeing on, these very fundamental factors makes it extremely challenging to come to agreements and understanding about the more fundamental factors, such as the amount of money to save, or the amount of money it will take to live during retirement.

Given this somewhat sobering look at less than ideal communication and agreement between the individuals in couples, it’s a good idea for any couple to sit down and hammer out a detailed plan. First, each person needs write their own plan, then get together and share what they’ve written. If a couple can do this between themselves, that’s great. But there’s nothing wrong with including a third person, the family’s financial advisor or any mediator, to make sure that both sides are heard and the most practical and agreeable plan is arrived at. After all, the goal is to have the best result for everyone.

An Agreement Plan

Below is a template for working out a plan. Any couple deciding to work through such a plan will discover that they probably have some additions or changes in the plan. The important thing is to have both parties contribute all their individual information and desires so that every position is clearly heard, and all important components of each plan are implemented.

One person may be surprised to learn how much the other has thought about things they never even knew the other person thought about. And sometimes, people are very surprised too, to discover things about themselves they didn’t know.

Financial Planning Strategies

Given that many relationships are fraught with lack of clarity in what each member of a couple thinks, feels or values about important financial decisions, it’s an excellent idea to have each person write a mission statement. This is not just about money, because money is only a component of a relationship. It shows the style of the people in the relationship. To get closer to the same goals, and therefore develop strong short and long term financial plans, each person writing his or her own truth about some very basic – but telling – components will help get both members of a couple “speaking the same language” regarding finances.

Here are highly relevant questions to answer that will all work toward getting the financial strategy put in place:

1. What is the most important thing about us as a couple and about our family?

2. What do I think our united and mutual larger goals ought to be?

3. What is the best way to resolve our disputes, should we have any ? :-)

4. What do I see as our particular strengths?

5. How can we best handle major complications in our life – loss of job, unanticipated illness of family member, unforeseen accidents?

6. What kinds of support structures or professionals do I believe we ought to have included in our inner circle?

7. What’s the role of each of us individually, as a couple and our family as a whole in community involvement?

Then both parties of the relationship will write out 3 to 5 one-year goals, 3 to 5 five year goals and 3 to 5 ten year goals. These need to be articulate and specific, not generic. “I get a new car” will not do. The make, model, cost and payment plan along with the month and year the purchase is intended needs to be listed. Sometimes this information couldn’t be more surprising to the other person than being told their significant other intends to move to Antarctica.

That’s the purpose of this kind of exercise, so that people are not in their 60s wondering why their goals are not shared by their partner. Sometimes we do not realize that others don’t have the same picture in their minds as we ourselves do. It just never crosses our mind that the person with whom we share our entire lives has a different picture. Still, this is often quite true.

Then each person needs to fill out the following concrete information, to make sure that both parties have – or end up with – the same information.

Working Backwards

The best way to work a plan is to start from the end and work back to the present. To help you figure out how to do this, fill in the following blanks:

1. On today’s date, we have an after-tax income of $________ per month.

2. Our life costs $________ per month.

3. We save $_______ per month in after-tax accounts and $_________ in tax-deferred accounts.

4. I plan on retiring in the year ______.

5. My significant other will probably retire in the year _________.

6. Our current net worth is $_______, inclusive of $ _______ in assets, $_______ in retirement plan and $_______ in investments.

7. After I retire, our annual expenses will be $________ per month, and $________ per year.

8. We will need to have $_________ accumulated by retirement to live comfortably.

These are the actions I intend to take to fulfill the above goals:




A list of things I have control over:




A list of things I do not have control over:




Contingencies for the items I do not have control over:




We live the good life in this country if we plan and consider our future. There are many places to go, endless things to do and many exciting adventures await those who plan their financial strategies, both short and long term. Not only do you make a happier, more fulfilled and exciting life for yourselves, but you are able to care for parents and children if necessary. You are able to give to agencies that are meaningful to you and you’re able to do volunteer work that contributes to the betterment of all.

Good finances means good health, and the so-called golden years are filled with more pleasure, activities, globetrotting or RV-ing across the country without worries or concerns or school or a job to hurry back to. It’s a beautiful time to explore life with your significant other, with whom you’ve weathered many experiences. You get to develop skills and enjoy hobbies that have been put on hold while engaged in your career and raising a family.

Do the financial planning now, stick with the plan, and your future self will thank you when you get to reap all these delightful rewards.



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