Episode transcript
Sean, welcome to Smart Money. It’s always nice to have another Sean in the house. Let’s start by getting to know you a little better. What do you do for work, what are your hobbies, and how do you feel about money? “I realized that savings alone wouldn’t help me in the long term, so I started investing in stocks without much strategy. Eventually, I learned about mutual funds and diversified my investments. My main concern now is the volatility of the market and the fear of losing my hard-earned savings. I haven’t used a financial advisor before because of the cost. Magda, our BW Advisor CFP, suggested setting short-term goals and budgets for things like travel to ease my financial anxieties. I’ve never budgeted for specific expenses like vacations, but I have a general savings pool for emergencies. I need to work on setting aside separate funds for different goals to better manage my finances.” It does deplete the savings, which is acceptable. However, it remains above my baseline, ensuring that essential funds are not compromised. This allows me to categorize my expenses more effectively and allocate separate funds for each purpose, easing my mind about spending.
Creating multiple savings accounts for different goals can be beneficial in managing finances. By compartmentalizing savings for specific purposes like housing, leisure, and car expenses, it becomes easier to track progress and avoid depleting the overall savings. This strategy helps in avoiding the need to touch emergency funds and ensures financial stability.
Investing in the market carries risks, but it is essential for long-term wealth growth. Diversifying investments through mutual funds or exchange-traded funds can mitigate risks and provide stable returns over time. It’s important to focus on long-term goals and not be discouraged by market volatility, especially when investments are meant for future needs rather than immediate expenses.
Financial planning involves making behavioral and financial changes to improve one’s financial situation. For Sean, identifying short-term financial goals and allocating appropriate funds for them would be a good starting point. This ensures that cash is not held unnecessarily and can be utilized effectively for upcoming expenses like purchasing a new car or enrolling kids in extracurricular activities.
Understanding one’s financial needs and aligning savings with future expenses is crucial for financial stability. By planning for upcoming expenses like a new car and kids’ activities, Sean can ensure that his funds are allocated efficiently and not just left idle in a money market fund. This approach allows for a balanced financial strategy that caters to both immediate needs and long-term goals.
Having hobbies and personal interests is important for overall well-being. Setting aside funds for activities like ceramics classes can provide relaxation and fulfillment, enhancing the quality of life. Balancing financial responsibilities with personal enjoyment is key to achieving a satisfying and sustainable lifestyle.
It’s commendable that Sean is considering his family’s needs and personal interests while managing finances. By prioritizing short-term goals and planning for future expenses, he can ensure financial security and enjoy a fulfilling lifestyle with his loved ones.
I believe that with your current financial situation, we can allocate some of your cash towards supporting your short-term goals. It would be beneficial to have an emergency fund for you, and based on your comfort level with money, having six months’ worth of expenses saved up would be ideal.
Even though traditionally, only three months’ worth of expenses is recommended for two working adults in the same household, having a larger emergency fund could provide you with even more peace of mind. By dividing this fund into different buckets, such as a kids’ entertainment fund and a pre-funded car fund, we can ensure that you are prepared for any unexpected expenses.
Additionally, we can explore saving for your children’s college education and a down payment on a home through accounts like a 529 plan or a UTMA account. By strategically allocating your cash and setting aside money for specific goals, we can eliminate any fear or uncertainty you may have about your financial future.
As for retirement, it would be beneficial for you to conduct a retirement needs analysis to determine how much you and your wife will need in the future. Understanding your retirement goals and how much you need to save towards them can provide you with a clearer picture of your financial future. Considering the amount of cash you currently have, you may even be able to consider retiring early if that is a goal you are interested in pursuing.
Overall, by carefully managing and allocating your cash towards specific goals, we can help you achieve financial security and peace of mind for the future. However, I want to ensure that you feel comfortable knowing that today, you were making progress towards your retirement goals, for both you and your wife.