Crafting Your Financial Blueprint: Save, Invest, Indulge

October 2024

By Noel Roach, AIF®

One of the most frequent questions I receive is, "How much should I save, and where should I invest my money?" While these are important questions, many forget to also ask: "How do I fund my vacations and hobbies?" A well-rounded financial strategy balances saving while also being able to enjoy activities like trips or hobbies with no guilt. Whether you’re just beginning to save, or seeking to enhance your financial approach, make sure to include the tactics below in your plan.

1. Emergency Savings

Emergency Savings may seem basic, but they have an important role in your financial success. A solid emergency fund can alleviate anxiety from both unexpected costs (ever had a child or pet who needed immediate medical care? Or a busted pipe causing havoc?) as well as fluctuations in other investments. While many experts suggest saving three to six months' worth of living expenses, I recommend aiming for at least $1 more than what makes you comfortable. Keeping cash on hand is perfectly acceptable. Begin by setting a monthly savings goal and gradually build your emergency fund over time until you hit your goal.

2. Retirement Savings

Saving for retirement lays a critical foundation for your long-term financial success. The earlier you start investing in these options, the more your assets can grow through compound interest and market appreciation. Aim to maximize what the IRS allows you to do. This could include participating in an employer retirement plan and/or investing through IRAs. Once you have reached the maximum the IRS will allow, you can work with your financial advisor to determine if your retirement goals may require additional investments in a post-tax capacity (i.e. brokerage accounts).  

I am often asked about investing in real estate. Everyone’s situation is unique, but for some, diversifying investments could include this strategy. Rental properties can provide passive income leading up to and through retirement, while real estate investment trusts (REITs) offer a way to invest in real estate without the responsibilities of property management. Work with your financial advisor to determine if this strategy is the most effective way to meet your goals.

3. Mid-Term Savings

Mid-term savings are designed for goals you want to achieve within the next few years, such as buying a home, funding a wedding, planning a significant vacation, building a pool, or eyeing an early retirement. If real estate is on your radar, consider saving specifically for a down payment on a property (for a personal or investment property). I recommend setting up a separate account specifically for mid-term objectives. Work with your financial advisor to determine where to invest these funds so you are making your money work for you while keeping your money accessible.

4. Education Funding

Whether it’s for your children or your own further education, setting aside money for education can relieve future financial stress. Explore different options like 529 plans for tax-advantaged growth, custodial accounts, or even employer education assistance programs. Consider your educational goals and start contributing regularly to ensure you’re prepared for tuition costs or continuing education expenses. This can include both K-12 education and post high school education.

5. Debt Reduction

High-interest debt can be a significant roadblock to financial success. Prioritize paying off high-interest debts, such as credit cards, as quickly as possible. Create a debt repayment plan, whether that’s the avalanche method (paying off the highest interest rate debts first) or the snowball method (paying off the smallest debts first for psychological wins). Reducing debt not only frees up your finances for savings and investments but also improves your credit score and financial stability.

6. Fun

While saving is essential, don’t forget to allocate funds for enjoyment and leisure. It's okay to go on vacation even if retirement or education isn’t fully funded. Although many focus on the ROI of their investments, don’t forget that ROI doesn’t have to be just the money you make on smart investments. ROI can come in smiles and happiness as well. Creating a savings plan for “Fun” allows you to enjoy life’s little pleasures without feeling buyer’s remorse. This could cover epic vacations, hobbies, or simply a nice dinner out.

Where do I go from here?

By addressing the above six key areas, you can create a comprehensive financial strategy that promotes stability AND allows for fun. Depending on your savings goals, you might work on all of these areas at the same time, or you might narrow your focus in the short term. Collaborate with a financial advisor who understands your goals and can help you create a comprehensive plan. Need a hand? Give us a call (913-827-0590) or make an appointment for a free consultation.