For most, October marks the beginning of autumn, Halloween celebrating, and preparation for the holiday season. However, what some might not realize is that October is also home to Financial Planning Month. For people either just starting out their careers or those who are about to enter into retirement, financial planning and budgeting can be a difficult, confusing area. In honor of Financial Planning Month, we decided to outline facts to provide some insight and tips on budgeting, investing, and retirement.
- In 2015, millennials represented more than one in three American workers. Despite common belief that millennials are irresponsible with finances, a study shows that millennials save on average 8% of their salary for retirement which is not dissimilar from the 9% baby boomers save on average. Additionally, 74% of millennials surveyed said they are comfortable saving and investing extra money rather than spending it.
- Genetic factors could make up to 35% of the variation in investment behavior, according to a recent study. This defines our likelihood of making emotional errors in investing and whether or not we realize our losses. However, aside from genetic factors, socio-economic influences and individual choice play a large role in our investing behavior.
- A good way to get better at planning your budget is to practice the 50/30/20 model of budgeting – 50% of household income goes to needs, 30% to wants, and 20% to debt repayment and savings. With many people living on limited incomes and paying high rent prices, this model can help you prioritize what money you need to spend and what money can be saved.
- The frugal, penny-pinching mindset that many take on in order to save for a fulfilling, relaxing retirement often carries over into one’s actual retirement. Meir Statman discusses mistakes made in retirement spending and how conscientiousness can keep people from spending the money they’ve saved. Statman suggests structuring retirement spending with “managed payout” funds.
- The study of behavioral economics considers the motivations behind our economic decisions and how our daily economic and financial problems are influenced. One lesson from behavioral economics is that automatic saving is the best way for people to put money away for retirement, rather than leaving it up to saving money that is left at the end of the month.
- Almost two-thirds of American citizens in a recent survey felt concerned about healthcare costs in their retirement. However, the study showed that only 19% of millennials surveyed claimed that they were “very” concerned about healthcare costs while 41% of baby boomers made the same statement. Healthcare expenses are a difficult projection to make as health issues may increase over time and legislation regarding healthcare is often in flux.
- Student loan debt in the US amounts to a total of $1.45 trillion with 44.2 million Americans living with student loan debt. The average graduate in 2016 has $37,172 in student loan debt which is a six percent increase from 2015. When taking out student loans, consider how federal loans often are more likely to provide loan forgiveness, deferment, or flexible repayment plans than private loans. Making manageable monthly payments is important so that you can reach them and not harm your credit score by missing payments.
Regardless of age, budgeting, investing, and retirement planning remain important practices to put in place to work toward creating a comfortable future.