YOU CAN easily spend all day lounging at the beach..
(photo credit: MEITAL SHARABI)
The high schools are now officially on summer vacation and the elementary school kids are not far behind. It hasn’t even been 24 hours and it seems like the kids are already stir crazy. The common refrains, “Imma, I’m bored. What can I do? I’m hungry. What can I eat?” are already being verbalized. Not more than 40 minutes after getting his report card, my son Whatsapped me, “What are we doing this summer?”
Over the next two months, Israel will empty out as more and more families travel abroad. I admit it’s a sorry reflection on the country’s tourism industry that it’s cheaper to fly internationally than to vacation locally. Regardless of whether you stay local or go abroad, I would bet that in anticipation for your trip you spent hours speaking to friends and researching online to determine a destination and an itinerary for the perfect family vacation. We all want to pack in as much as possible in order to get the most value out of our trip. Not that there is anything wrong with spending a good amount of time planning a 1-2 week vacation. It’s a good thing to get both maximum value and fun from your hard-earned time off.
Yet while so much planning is invested for a week or two, when it comes to figuring out how to finance 20 years of retirement we can’t seem to find the time. I realize that trying to plan for something that maybe years down the road isn’t always at the top of our priority list. We are all busy and tend to focus on the immediate or short- term while neglecting important long-term financial issues. But maybe we can take just a bit of vacation planning intensity and apply it to long-term financial planning.Wake up
Stop delaying. Take a few minutes and analyze where you are today and think about where you’d like to be in the future. Make, don’t buy, yourself a cup of coffee and try to figure out your anticipated income over the next few years. Don’t forget about potential bonuses or raises you might receive, or major gifts or inheritances that may come down the road. Then calculate your expenses and don’t forget to include any large bills or upcoming expenses (e.g. car or apartment purchase, wedding etc...)
Saving money needs to be made a priority in order to both fund next year’s summer trip as well as your retirement. Once you know how your money is being spent, make sure that your future responsibilities get top priority. Each month, before you pay your bills, pay yourself first and automatically deposit money into your savings account. If you don’t prioritize savings, there is a pretty good chance that you won’t save. After all, we can all figure out a way to spend more money.
Your money itinerary
Developing a financial plan is like designing a travel itinerary. For the latter, first you decide where to go, and then you figure out which sites you want to see. Your financial plan is no different. Before you decide which investments to buy, you need to figure out your goals and what kind of retirement you want to have. After that you can plug in the investments that will allow you to achieve those goals. In fact, the investment aspect may be the easiest part of the process. Trying to determine how to spend many years in retirement can be a daunting task.
“Don’t put all your eggs in one basket.” I am sure you have heard of this phrase. The asset allocation model is a tool that can help with this. As implied by the name, asset allocation is the process of determining how your investment portfolio should be invested among the different asset classes (cash and cash equivalent, income and equities), based on your risk tolerance and your financial goals. It involves diversifying or spreading your investments across these asset classes in order to maximize potential returns while minimizing risk.
Many studies have shown that having a realistic asset allocation model is one of the main factors of success for a financial plan. In fact, an asset allocation model can be more important than owning shares of a winning stock. Just as you would never ask a travel agent to plan a week’s vacation in order to see one specific painting, you shouldn’t ask a broker to buy the hot stock your friend recommended as your sole investment.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing. www.gpsinvestor.com; firstname.lastname@example.org.
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