Creative financial planning isn’t much different from standard financial planning, yet it can make you thousands of dollars over the course of your life. It’s about being able to chop and change your plans to adapt them to the current situation. Most Americans are stagnant savers. In other words, they came up with a plan once and now it remains stagnant and stale. They assumed it would work forever and they don’t have to think about it.
By being creative and regularly reviewing your plans, you can make your dollars go further. Here are seven creative steps for financial planning.
1. Set a Target…and Review It
Standard savings guides tell you to set a target. This is an intelligent piece of information. Without a target you don’t know where you’re going and you have no idea how much you can save. The mistake people make is not factoring in things like inflation and their current economic circumstances.
Review your plans regularly to ensure you’re still moving down the best path available. What works now might not work in six months after you’ve lost your job or suffered a salary cut.
2. Inflation Factoring
Saving $100 a month in 1990 would yield a tidy sum a decade later. Deciding to do the same in 2010 and waiting for another decade would still give you a nice little nest egg, but it wouldn’t have the same value. Factor inflation into your calculations. Learn about inflation and how it impacts savings.
Here’s a brief explanation as to what inflation is. If you put more money into the economy the value of each individual dollar goes down. This is known as inflation. If the inflation rate is 5 per cent it means prices will go up on an annual basis. It’s why everything seems to get more expensive each year.
For savings, this means every dollar loses its value. Interest rates normally counter inflation, but when interest rates are under the rate of inflation you’re losing money. It’s why you have to factor this in to how much you dedicate to saving and investment every year.
In relation to saving, if the difference between interest rates and the rate of inflation is three per cent in the latter’s favor, you have to save an additional three per cent to counter it and maintain the account’s value.
If possible, upgrade the amount you save and your projections every year or two after inflation. It prevents the devaluing of your monetary assets.
3. Stay in the Know
Savings accounts and banks don’t stay in the same position year-on-year. Take a look at the Great Depression when many smaller banks went bust and savers lost everything. Even banks in the UK, Greece, and Spain have experienced problems which have made savers panic.
Stay updated on the latest financial news and act accordingly. If there are troubled waters on the horizon, you’ll know about it before the general panic starts.
This applies more so if you’re actively investing. It’s rare for banks to fall into bankruptcy, so watching the general news channels like CBS and CNN work fine.
4. Professional Help
We’d all like to think we know everything about creative financial planning from reading a few blogs and articles. We don’t. Nothing can replace the value a qualified financial advisor has to offer. It costs a small amount of money, but they’ll look at your situation and provide some input on your financial plans.
Go and see a financial planner in person. It’s a far more personal approach and they can better assess you. Take some of your bank and income statements so they get the full picture. The more they know about you the more accurate the information they can give.
5. Employ an Accountant
Accountants do cost quite a bit of money to employ. On the other hand, they also know more about the law than you. They know about the loopholes and know how you can save money. This is where true creative financial planning comes into play. By manipulating your money and tax affairs in a completely legal way, you can pay less tax and have someone keep their fingers on your financial pulse at all times.
Be careful who you employ. Accountants have varying levels of quality. Look for the ones with lots of customer testimonials and a positive reputation in the community. Ideally, you should be able to employ one relatively close to where you live.
6. Changing Plans
Financial plans should never stay the same. If you’re saving up to put your kids through college, you should have an ‘out’. For example, if your kids flunk high school and fail to get into a college you should have a plan B for your money. It shouldn’t just sit there with no purpose or your motivation to save fades.
7. Invest Actively
Saving passively is but the tip of what you can potentially unlock with your spare capital. Take the initiative and actively invest. This is where you can lose money, but if you tread carefully you’ll reduce the risk.
Low-risk investments like bonds and government securities provide low returns but have almost no chance of leading to you losing money. Investing in mutual funds for the major American companies also offers low returns. On the other hand, it would take the whole of the American economy to collapse for you to lose money.
The amount of risk you take on directly correlates with the amount of return. Only you can decide on what the right balance is.