How To Make A Financial Plan When You Can’t Afford A Financial Planner

How To Make A Financial Plan When You Can’t Afford A Financial Planner

What do you do when you cannot afford a financial plan?  This is a great question as there is certainly a subsect of families out there that don’t have the means, wealth, or ability to work with an advisor.  I’ve been referred to these individuals hundreds of times in my career and I do my best to all of them out as best I can.  Below is my go-to advice for when you are not sure how the heck you will ever retire.

Set the scene:

A married family with 3 kids who make $150,000-$175,000/yr combined.  They live in an upper-middle-class area as the schools are top-notch for their children.  However, they find it very difficult to save anything as their children are in 3 sports each, and at the end of the day, there aren’t many discretional dollars left over, if any.  They too want to retire someday but don’t know how to get there.

Does this story sound like someone you know?  I probably know more people who fit this mold than I do who have amassed millions of dollars, and I work in the millions of dollars game.  Below I will list the advice I give to these families.

1. Debt- Perhaps the most crippling thing in finance, and especially if you don’t have much superfluous dollars at the end of the day.  You must stay out of “bad debt”, let me repeat YOU MUST STAY OUT OF CREDIT CARD AND OTHER BAD DEBT.  This is rule 1,2,3, and 4.  For these individuals, once you amass this nasty credit card debt, it can easily lead to your death knell. 
2. Emergency Fund- Having 3-6 months of expenses saved for emergencies is good advice for all.  However, if you are living pretty tight, it simply means your ability to recover from an unforeseen expense is that much more difficult.  Since that is the case, I highly recommend finding every last cent you can and making sure that the reserve fund is, well funded.
3. College- Gut punch here, but the reality is grants, aid, and student loans are likely the best course of action.  The sooner you realize this, and the fact that we live in a society where there are a plethora of options and ways to fund these options, the better. 
4. Retirement savings- Likely don’t have the ability to save much at all.  Ideally, you work somewhere that gives you at least some 401(k) match.  If so, I highly recommend that at a minimum you put in that 4-6% or so and get the free money your employer will give you.  Even if you can never increase your amount from the minimum match contribution, having some liquidity in retirement is going to be crucial.
5. Mortgage debt- This is a biggie for this demographic.  Counterintuitive I suggest lining up your mortgage payoff with your retirement date, more on that in a moment.  Thus, if you plan to retire at age 70, for this specific demographic being debt-free will open up a world of retirement options.
6. Income- Likely you will be working longer.  The good news is if you’ve stayed out of debt, working longer will be the best way to maintain your lifestyle as long as possible.  Additionally, there is a good chance you might be able to cut back as your kids are grown, and perhaps find a part-time gig that pays you enough to maintain said lifestyle.
7. Social Security- This is a big one folks.  I highly suggest you work at least until you are 70 or put yourself in a situation where you can stay afloat until this magical age.  At this point, you and your spouse will receive the highest SS payments, which should be a nice payday. 
8. Insurance- If you are fairly tight with two incomes, you must protect these incomes with some form of life insurance (and likely disability if you can).  Something inexpensive like term insurance.

The Plan!

Ok, so if I am going to summarize my thinking it is pretty straightforward. 

1. Minimize retirement expenses.
2. Maximize retirement fixed incomes.
3. Be debt-free.
4. Have a little bit of a nest egg.
5. Have a slush fund for emergencies.
6. Protect your income.
7. Come to grips that certain luxuries aren’t on the table.
8. LIVE WITHIN YOUR MEANS.

If you follow these steps, you should position yourself to have a dignified life and retirement.  Hope you enjoyed this tidbit and stay wealthy, healthy, and happy.