What is the biggest financial mistake you can make? Most people think it’s waiting too long to save or not saving enough for retirement, or choosing the wrong investments. While those are reasonable answers, the biggest mistake you might make is not looking at your whole financial picture and how it works together. The core of your financial planning is your own unique priorities, beliefs, purpose and health.
Your family and loved ones
Your decisions about helping your family are clearly going to be a major part of your financial strategy. When your children are young, you’ll likely be considering saving for their college educations, and, if so, how much, and in what investment vehicles. When they’re young adults, you might think about financial support for things such as the down payment on a new home. And when you’re drawing up your estate plans, you’ll want to consider how to distribute assets to your children, grandchildren, other family members or loved ones.
Your personal beliefs
You want to positively affect the world around you, and that’s why you may feel compelled to make charitable gifts throughout your life. You might also consider philanthropy as part of your legacy. To accomplish this, you’ll want to include gifting techniques in your financial strategy today and your future estate plans. For estate planning, you’ll want to work with your tax and legal advisors.
Your purpose in life
When you retire, you’re entering a world of possibilities. How will you define your new sense of purpose? For some it might be traveling around the world, and for others it’s volunteering or pursuing hobbies. Each of these choices carries different financial implications for how much you’ll need to accumulate for retirement, as well as how much you’ll need to withdraw each year from your retirement accounts such as your IRA and 401(k).
Health is wealth, as the saying goes, and your physical and mental health play big roles in your financial planning. On the most basic level, the healthier you are, and the better you take care of yourself, the lower your health care bills will likely be during retirement, which will affect the amount you need to put away for health care. You also may need to prepare for the costs of long-term care, which can be enormous: a private room in a nursing home can easily cost $100,000 per year, according to the insurance company Genworth.
When putting together a lifetime financial strategy, every part of your life matters. It can be challenging to weave all these elements into a unified vision, so advice from a financial professional can be helpful in guiding you.
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Caitlin Davis, CFP®, AAMS®
Financial Advisor, Edward Jones