Financial planning requires continued learning

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What do real financial planners study?

A few weeks ago, I was on the organizing task force of the Financial Planning Association’s Retreat Conference. Five certified financial planners from Tennessee were among the 400 attendees described as the “Thinkers, Thought Leaders Change Makers” of the financial planning profession.

The opening keynote address was a powerful and moving presentation by Candy Chang, an urban space artist and mental health advocate.

Her “Before I Die” project is a thought-provoking exercise very relevant to goal-setting in your personal financial plan. On huge chalkboards, in cities around the world, she invites passersby to reflect upon their mortality and consider the things that matter most (https://beforeidieproject.com/).

With anonymity, people write “Before I die” I want to … travel, spend more time with family, adopt a child, learn a new language, retire, start a business, reconcile a wounded relationship, get out of debt, buy an RV, etc.

Small lifestyle changes can have big results

James Clear, author of “Atomic Habits,” described the impact of how small changes to our lifestyles can have remarkable results. His challenge: “Change your habits and get 1% better every day.” With what he calls the compounding nature of habits, small changes to your spending, savings and debt management can gradually have a significant impact on your ability to create and sustain wealth. According to Clear, changing habits begins with an “identity change.” Who is the person who can achieve the outcomes that you want? Be that person.

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In a session titled “The Burned Out Family Caregiver,” Annalee Kruger, founder of Care Right Inc., explained how she “strives to help families understand the benefits of proactive planning and ongoing discussions about the aging of their loved one.” Her presentation described tools and resources for caregivers to have a plan in place versus waiting until a medical crisis arises in the family (www.carerightinc.com). In particular, her “Grab and Go” notebook — a binder containing all of the key contacts and documents a senior might need in a crisis —  is especially valuable.

Sonya Dreizler is a consultant on values-aligned investing, i.e., “investing that drives social and environmental progress through investments.” She described the public’s increasing interest in impact investing based on factors such as values, environmental sustainability, governance, social responsibility, etc. Dreizler expressed her concern about the lack of (political and public) civility that is impeding progress on these issues.

Barbara Coombs Lee, author of “Finish Strong,” said, “Dying in America is a terrible mess.” According to Lee, there are woeful imbalances between benefits and burdens during end-of-life care.

Financial planning: Living and dying well

For example, 1 in 4 people who enter the ICU with documented “Do Not Resuscitate” orders get CPR. And, 3 in 4 patients with a documented preference for comfort care get at least one aggressive medical intervention they didn’t want. She teaches people how to become good advocates for themselves and their loved ones when suffering through fruitless procedures and prolonged stays in intensive care.

Real financial planning is about more than yesterday’s closing stock market data. Of course the money matters, but from cradle to grave, the financial planning process is about living and dying well.  

Paul Fain is a certified financial planner and president of Asset Planning Corp., a financial planning and investment management firm based in Knoxville. He welcomes comments and column ideas, but cannot offer specific personal financial advice. Write to him at paul@assetplanningcorp.com.

How much money Americans have in their 401(k)s at every age

If your company offers a 401(k) plan, it can be an effective way to save for your future: You get tax benefits, the money is automatically taken from your paycheck before you have the chance to spend it and, often, companies offer a match, which is essentially free money.

Consistent contributions can even make you a millionaire. In fact, the number of Fidelity 401(k) accounts with a balance of $1 million or more recently hit a record of 180,000. These 401(k) millionaires are, “in large part, everyday people that are just taking advantage of that 401(k),” Katie Taylor, vice president of thought leadership at Fidelity Investments, tells CNBC Make It. “You don’t need to make a million to save a million.”

The average 401(k) balance, across millions of Fidelity accounts, is $103,700.

Not surprisingly, the account balances vary by generation. To give you an idea of how your retirement savings stack up against your peers, check out the average 401(k) balances in Fidelity accounts, broken down by age, as of the first quarter of 2019.

The data was provided to CNBC Make It by Fidelity, the nation’s largest retirement-plan provider.

Introducing Bodeswell: Personal Financial Planning To Help You Live Your Best Life

Matthew Bellows spent nearly a decade creating the sales engagement market category as a founder of Yesware. Now he has set out to reinvent personal finance. We sat down to talk about how he’s going to do it:

“No matter how confident, respected or successful we are in the daytime, we all have nights when we stare at the ceiling and worry. Sometimes we think about the past. But most of the time, our fears are about the future. “Will I be able to help my kids with college?” “Can I help mom with her long term care?” “What if I lose my job?” No matter how much money we have, we never completely lose those fears.”

“Or we dream about what could be… “Can we afford to buy that house on the lake?” “Can I quit my corporate job and start a company?” “Can I live the life I want to live?”

Today he is announcing BodesWell (bodeswell.io) – a new software company to help us answer those questions. 

The planning, timing and funding of weddings, colleges, jobs, kids, houses, healthcare, retirement and legacies are complicated and filled with risk. BodesWell seeks to remove the stress and doubt surrounding big financial decisions and give you a roadmap to achieve your goals. They make software to take away the overwhelming aspects of financial planning so you can sleep well at night.

This sounds like financial planning. Isn’t this already done?

Financial Services is the least trusted industry in the country. Almost 2/3rds of people with financial advisors don’t feel like they have someone to talk to about money.

There are hundreds of Fintech startups, but this core problem isn’t solved in a comprehensive way: more Americans than ever before feel like they can’t afford to get married. Many new parents are unprepared for spending the $233,000 before college that the average child costs. Almost  80% of Americans don’t feel ready for retirement. Even among wealthy Americans, half of us have no idea how much we need to retire.

The BodesWell Approach

By combining personal financial data, economic models of the future, and an incredibly simple interface, BodesWell takes away the overwhelming aspects of financial planning so you can build the life you want. 

They will charge a per month or per year fee that supports the software. If they have partners or earn referral fees, all those relationships will be clearly disclosed. They will not hold assets under management and instead will focus on being the dashboard of your financial life. 

To me, BodesWell has the opportunity to benefit almost every single human being on the planet. Just about everyone lays awake at night and wonders about their future. Based on my research, I was surprised to discover there’s no single software solution that addresses this core human need.

If this resonates with you please click over to bodeswell.io and sign up for their beta, starting this summer!

College students: Here’s what you need to know for a financially stable future

College student in dorm

James Woodson/Getty Images

A new report from Sallie Mae indicates that college students are eager to learn more about financing their lives.

According to the report, 38% of college students want to learn more about savings strategies and 33% want more information on student payment options — a promising outlook for the future borrowers of society.

The monetary habits students form early on are the stepping stones to how they’ll understand and treat their finances in the future, making financial literacy one of the most important factors in a young person’s life.

To provide education around the topic, certified financial planners and recent graduates weigh in on what college students need to know, plan for and practice before graduation.

Start building credit in college

Whether or not you have a good credit score — the three-digit number that credit bureaus use to determine your creditworthiness — is based on the financial information found in your credit report. The most common credit scoring system is by FICO, the Fair Isaac Corporation.

Sallie Mae’s report found that two in five college students don’t know their FICO® Score or don’t have one. Yet knowing your score and working to improve it is key to future financial success.

“Credit is an intangible resume that you share with creditors and lenders that reveals how much experience you have, how responsible you are and your ability to manage money,” says John C. Pak, financial planner at Otium Advisory Group.

According to Pak, students should begin to build their credit as early as possible in order to take advantage of optimal borrowing rates and limits later on.

Consider a student credit card

Student loans are a way in which college students can build credit, but if they don’t have a need for them, a starter or student credit card is another great option.

Pak recommends cards with no annual fee, low interest rates and high cash back percentages on categories like food and gas, such as the Discover it® Student Chrome or Discover it® Student Cash Back.

With the Student Chrome, you’ll earn 2% cash back on up to $1,000 per quarter on gas station and restaurant purchases combined. The Student Cash Back offers 5% cash back on rotating bonus categories (up to $1,500 per quarter) like gas stations, grocery stores and Amazon.com.

If you choose to apply for a student credit card, focus on only spending what you can pay back each month. Kathryn Mancewicz, a 2015 college graduate, advises paying off your credit card bill each month in order to prevent credit card debt on top of any student loans.

“I had a student credit card in college with a $600 limit. That along with a car loan that my mom cosigned and I then paid off helped me to build up my credit score to over 700 before I even graduated. Now I have never had a problem getting approved for any other loan I may have needed or wanted to take out since,” says Mancewicz.

If you aren’t quite ready for a credit card, a second option is to become an authorized user on a parent’s card.

“I hit a wall where I was being rejected for housing because I had no credit history, and I was fortunate enough to have a father who essentially lent me his good credit by allowing me to be an authorized user for his card,” says Rochelle Burnside, 2019 graduate of Brigham Young University.

Create a budget

In addition to building credit throughout college, having and following a budget is key to spending within your means and establishing savings.

As a 2018 college graduate, Tess Thompson recommends saving up over school breaks and vacations to be able to afford purchases throughout each semester.

“Figure out how much you have saved and then divide that over how many months you will need it to last. Then, break it up into how much you can spend weekly and even daily,” says Thompson.

Bankrate’s Student Budget Calculator allows you to build a budget of your own, with categories like school expenses, groceries, savings and loan payments. If you’re interested in mobile budgeting options, try a free budget tracker app like Mint.

The Mint app connects to your bank account and allows you to build a personalized budget based on your spending habits and necessary payments. You can also track your bills and credit card balances.

“Starting a budget in college will help you establish a good, lifelong habit early on. When you get used to budgeting on next to nothing, you won’t be the type to start blowing all your money as soon as you get your first real job,” Mancewicz says.

Build up savings prior to graduation

Before you turn the tassel, have a savings built up to help make your transition from college to the real world a smoother process.

Patrick Logue, financial advisor and owner of Prudent Financial Planning, suggests students have at least six months worth of expenses in an emergency fund. A solid amount of money squared away ensures that you’ll have enough to live on should you not find a job right away.

“If I’d been able, I probably would have liked to save $4,000 for a deposit, application fee and first month’s rent for an apartment, as well as moving fees and living expenses while I waited for my salary to kick in,” says Burnside.

Part-time employment

Working a part-time job during college is both a constructive use of free time and a means of building savings during college. In fact, an average of 70 to 80 percent of students is employed according to 2019 survey by NASPA–Student Affairs Administrators in Higher Education.

Pam J. Horack, financial advisor at Pathfinder Planning LLC, says the two most important factors for students beginning their financial life is having a part-time job and understanding accountability.

“If you don’t have any income except the ‘Bank of Mom and Dad,’ the concept of budgeting is irrelevant. Students don’t have anything at risk, so the money is meaningless,” says Pam.

Part-time jobs in college not only allow you to build savings but also give you more control over your finances. Specifically, finding a job on your college campus can cut down on transportation costs to and from the job and potentially offer student discounts.

“It’s not easy to save when several thousand dollars are committed to tuition each semester, but $1 is better than $0. Start a job specifically intended for squirreling money away, like driving for Uber or contributing class notes,” says Brandon Kazimer, a 2015 graduate of Western Illinois University.

The last word

When it comes to budgeting, building savings and establishing credit, start as early as possible.

Try a student credit card that will help you earn rewards for everyday purchases like food and gas. Get jump-started on a budget that takes into account all of your daily, weekly and monthly wants and needs. Lastly, try and have at least six months of expenses saved to ensure a smooth transition from college classes to the workforce.

The earlier you start, the more prepared you’ll be when it comes time to graduate. You might regret not starting early enough, but you won’t regret putting in the work for a financially stable future.

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Financial planning jargon could be costing you money

Financial planning has a lot of confusing jargon. Here is a short course on what some of these things really mean.

Financial planners get paid in three ways: commissions, fees and commissions and fees. Period. Fee-only planners charge retainers, hourly rates or a calculation based on a percentage of net worth or assets that they manage. While some firms use the term fee-based, there is no such thing. These firms collect fees and commissions.

How someone gets paid can create conflicts of interest. Someone who earns commissions receives a benefit through selling you something, someone who manages assets benefits from the more assets they manage, and even those on an hourly have conflicts around how efficiently they perform the tasks at hand. Someone who is a fiduciary is expected to put your interests ahead of their own. Costs may not be different among fee structures because fee-only firms may still help you meet your objectives with products such as life insurance where a commission is earned by someone, just not your planner.

Guarantees are also confusing. Any investment provides up to four things: safety, income, growth and tax advantages. The more you have of one, the less you will have of the others. When something offers guarantees, there has to be a price to pay. The price will be lower returns or your money’s accessibility or how complicated the guarantee is.

Here are some things to think about when you are looking for advice.

Understand certainty vs. uncertainty. For example, if you have a portfolio that has had a lot of appreciation but you want to switch advisers, be alert if that adviser wants you to sell everything in order to invest with them. Taxes are guaranteed, returns are not. Most advisers should be willing to work around assets that have appreciated, utilize them for gifting or have a compelling reason why changes should occur.

Know what you are paying for. Understand what the scope of services will be and the capacity of the advisory firm to carry those services out. Turn this understanding into agreements rather than simply expectations.

Keep asking questions. If something does not seem right to you, you have the right to ask about it. If the explanation still does not make sense, you have the right to have it explained in a way that does. While a good advisory relationship is based on trust, the trust should be insured by making things understandable.

Spend your life wisely.

Ross Levin is the chief executive founder of Accredited Investors Wealth Management in Edina.

9 Tips to Manage Your Money During a Career Change

Call it a sign of economic prosperity—Americans are quitting their jobs at an increasing rate. According to the Bureau of Labor Statistics, job quits continue surpassing layoffs and discharges—a trend that started in July 2011. In the month of March alone, some 3.4 million people quit their job, up from 3 million quits in January 2018.

Changing careers can be an exciting time, and when the job market is hotter than ever with record low unemployment rates, there may not be a better time than now to take a chance on a new start. For some, a career change means chasing a long-sidelined passion, while for others it means exploring a new industry.

While the promise of something new is sure to disrupt your current routine, it may also mean a disruption for your finances. Changing your career might mean entering a lower-paying industry, starting on the bottom floor with a lower starting salary or taking on a hefty cost to relocate.

In this post, we’ll offer some tips on how to manage your career transition without jeopardizing your finances.

Adjust your expectations about your new paycheck

Any career change will likely come with a change in pay. For those entering a new industry at a lower level than their previous position, there’s a good chance that will mean a lower salary. With that being said, you can and should still prepare to negotiate.

Do your homework to find out what kind of salaries are common for employees in your new position. Get a clear understanding about what is standard in the industry, and use that to predict what your offer might look like and know what a reasonable salary is to request.

At this point you should also check in and make sure you can afford this transition. If you’re the breadwinner looking at a career with a lower average salary, how will that affect your family? Take this into consideration when you’re looking at major changes to your income.

Start living on your new salary now

In the instance that you will be taking a significant paycut with your new career, you need to change your budget accordingly. As soon as you have an idea of what your new budget will need to look like, it’s a good idea to start making adjustments.

In addition to how much money you have coming in, some costs may change with your new career as well. When you may have driven to your previous job, perhaps now you have to pay for public transportation or vice versa. If your new career requires you to move, you may be moving to a location with a higher cost of living.

Lisa Lewis, a Colorado-based career coach, went from working as an advertising manager to launching her own business as a career advisor in 2016. The transition cut $10,000 from her annual income when she first took her business full time.

“I knew I needed to minimize my overhead costs to be able to take on more financial risk,” she said.

One of the first things to go was her brand new Acura SUV. She swapped it out for a 2005 Toyota Corolla.

“[I knew] that paying hundreds of dollars in a car payment every month would make my transition riskier,” she said. And playing it safe in that department paid off in the end—despite her initial salary setback, Lewis was able to build her business, matching her previous income in her first year, and surpassing it thereafter.

Make your career change a part-time job

If you’re entering a new industry, find out what it will take to give you a leg up when you’re applying to jobs. You may need certain certifications or training to be a desirable candidate. Perhaps you need to go back to school and obtain a higher degree or a different degree to help you break into an industry.

For a smoother transition, sign up for any courses or certification trainings you might need while you’re still in your current job. You may be able to squeeze them in after work or on weekends. This way, you get a steady income and benefits while paving your new path gradually.

If you’re heading into a new industry, you may consider exploring that industry through internships or gigs you can do on the side before you commit to seeking full-time employment.

For those who are aiming to launch their own business like Lewis, quitting your job cold turkey might not be an option. It might make more sense to work on your new venture part-time after hours until you feel prepared to take off the training wheels.

According to Lewis, she started slowly, building her business part-time to see its potential to become a full-time venture.

“It took me 10 months to build from zero clients to a predictable, stable part-time income,” she said. “When I was generating enough revenue from the side hustle to justify making the leap to full-time, I made the decision to leave.”

Be prepared to miss a paycheck (or several)

Though there are plenty of movies that portray some character reaching the last straw and walking away from their career to chase a different dream or find love or whatever else—that’s probably not the best plan for you. If you’re looking to change careers—whether that means leaving architecture to be a chef or quitting as a fashion designer to be a model—you should plan ahead of time.

Say you’ve secured a new position, you’ve given notice at your current job, and you’ve arranged a week off in between leaving and starting at the new job. When you start at the new job, there’s likely going to be a bit of a delay before you see your first paycheck. It can be difficult to time your plan so that you don’t miss a pay cycle, so you need to be prepared to cover your bills should that happen.

If you’re leaving your job without a new one lined up, be sure you’ve got ample cushion in your savings account to carry you over. For some, three to six months’ worth of savings might be sufficient. But if you’re planning an extended hiatus or your new venture doesn’t come with the promise of stable income, you should bank on saving even more if possible. You might even take out a personal loan or explore other options to keep your finances on track while you’re not getting a paycheck.

Take care of important medical appointments before you jump ship

Along with potentially giving up a steady paycheck during your career transition, you could also be forfeiting benefits like employer-provided healthcare. Gap insurance might be available through COBRA or the Healthcare Marketplace, but your care might cost substantially more.

Depending on how long you anticipate a gap in coverage, it’s a good idea to take care of annual check-ups or planned procedures before you jump ship.

Use up your FSA or transit benefits

Take a look at your current employer’s benefits terms. If you have perks like a flex spending account or transit benefits, your contributions may not be accessible after you leave the company.

William Nunn, a financial planner from Louisiana, left a big bank to launch his financial planning firm earlier this year. What he didn’t realize was that he’d be forfeiting the $2,000 he’d built up in his employer’s medical reimbursement account. He learned too late he had just until the end of the month in which he resigned to use his funds.

“I was not happy to find out I was going to have to use savings to pay for deductibles and copays,” Nunn advised. “Find out these little details.”

Make sure you spend what you have in those accounts in order to avoid losing it when you leave. You can quickly find FSA-eligible items at FSAstore.com and drugstore websites like CVS and Walgreens have special sections for FSA-approved items.

Don’t forget your nest egg

While it is possible for you to leave your 401(k) under the administration of your former employer, that option is not available to everyone. And if it is available, it may not be the best choice, especially if you fear losing track of the account or could have better plan options with your new employer.

Initiate a rollover to your new 401(k)

Take a look at both plans and find out if your new plan would incur higher fees or fewer investment options. If you’re not happy with the new plan, and you have the option to leave your 401(k) with your previous plan provider, go for it. Most retirement benefit plans offer free 401(k) rollovers when you switch employers.

You might decide to rollover your old 401(k) to your new provider simply to keep things more simple. If you’ve switched jobs a few times, it can be hard to keep track of several accounts in different places.

Open an IRA

Some might decide to transfer their 401(k) to an IRA or SEP IRA. This is likely the best option for folks transitioning into a position without an employer-sponsored program, like freelancers or entrepreneurs starting their own business.

Don’t cash it out

Cashing out your 401(k) when you leave a job is an option, but we highly advise against it. Withdrawing funds from your 401(k) before age 59.5 can mean paying hefty taxes and early withdrawal penalties on the amount.

Ask about relocation benefits

If your new career requires you to relocate, find out if the company pays for any portion of your moving costs. Everything just mentioned about your budget would also be hugely affected if you also have to pay out of pocket to relocate.

Consider the benefits of your new job in relation to the cost for you to take it. If the transition will be costly, but you’d be able to make up for it rather quickly once you’re settled, it might be worth it. But if the transition is going to derail your finances, you may want to consider other options.

Bolster your network

Changing careers can be a huge milestone. Aside from the technicalities like money and job prospects, it’s a good idea to check in with yourself to make sure you’re making the right move.

Talk to your family and trusted friends as well to make sure you have the emotional support to go through this change. If your finances do get strained, could they have your back?

Additionally, start building a community within your desired industry. Find networking events and conferences to meet contacts and learn more about opportunities and getting into the business. Reach out to industry leaders and ask for advice.

The bottom line

The most important thing is to do what’s best for you, and have a plan (and a backup plan) to see it come to fruition. Think of your career change as an investment. It might be risky, but the return may be well worth it.

How Parents’ Financial Planning Influences Adult Children

Two older adults and a young adult (Photo: Thinkstock)

Twenty-seven percent of Americans are concerned about their parents’ financial security in retirement, and they are twice as likely to lack confidence in their own retirement prospects as those who are unworried about their parents, TIAA reported this week.

This finding was based on an online survey conducted by KRC Research in February among 1,003 U.S. adults.

Fifty-seven percent of respondents also reported that their parents’ financial planning for retirement had influenced their own planning. Forty-four percent said they avoided taking on significant debt, and 38% said they had consciously limited their everyday spending on nonessential items.

“We’ve seen firsthand what the data shows: People who are concerned about their parents’ financial well-being in retirement may be sacrificing their quality of life today out of concern for their own financial future,” TIAA’s chief financial planning strategist Daniel Keady said in a statement.

“A good financial plan that includes education, advice and lifetime income options for retirement can help build confidence that allows people to enjoy life today, without forfeiting their future retirement security.”

The TIAA survey found that pessimism about retirement security increased with age.

According to the survey, 52% of millennials described their parents’ financial outlook as excellent or very good, while only 35% of Gen Xers and 26% of baby boomers did so.

Their responses were similar when asked about their confidence in their parents’ current or future financial security in retirement. Only 47% of Gen Xers and 34% of boomers expressed confidence, compared with 60% of millennials.

TIAA said these confidence levels mirrored how the different generations viewed their parents’ approach to saving and investing. Thirty-nine percent of Gen Xers and 35% of boomers disagreed that their parents’ approach to saving and investing was admirable and one to emulate, but only a quarter of millennials disagreed.

Even among the one-fifth of survey respondents who said they were confident in their retired parents’ long-term financial security, 21% reported that they had some or a lot of concern about their parents running out of money in retirement.

“As the realities of financial planning change through life, parents and their children need to discuss their financial plans and concerns together to ensure they are on the same page about the future they’re envisioning,” TIAA’s director of financial planning, Shelly-Ann Eweka, said in the statement.

Is Millennials’ Optimism Misguided?

The survey found that people’s perceptions about their parents’ financial plans may not always match reality.

Seventy-two percent of millennials rated their parents’ financial outlook as good to excellent, yet only 57% of Gen Xers and 58% of boomers — the folks likely to represent their parents — rated their own financial outlook that way.

“The confidence that millennials have about their parents’ finances may actually create a false sense of security, especially when individuals mistakenly believe they will receive an inheritance (and plan their finances around it) when their parents don’t have the same plans or intention,” Keady said.

TIAA said individuals could initiate a financial discussion with their families to better understand how each other’s financial needs compare. They can also turn to a financial advisor for help in creating a retirement plan that seeks to minimize uncertainty and boost financial confidence by building lifetime income.

“Open dialogues and a well-planned retirement can help alleviate family stress and may give you permission to live your life without the worry of outliving your savings or becoming a financial burden to others,” Keady said.

Three money mistakes I’ve made that you can avoid

When it comes to managing money, even mistakes that seem small could end up being costly. That’s why it’s important to learn from mistakes made by others so you can make smart financial decisions from the start.

Unfortunately, I made plenty of money mistakes when I graduated from school — but the good news is you can earn from my errors. Here are three big mistakes I made that I hope you can avoid by learning from my bad example.

1. Investing too little of my income

When I got my first job out of school, I signed up for the company retirement plan. I’d always heard that you should contribute 10% of your income, so I did that right away — and kept doing that for years. It wasn’t until over a decade later that I actually sat down, did the math, and realized investing 10% likely wouldn’t give me enough to be comfortable in retirement.

For more than 10 years, I was investing too little, since I hadn’t taken my own retirement needs into account — and that’s time I’ll never get back. The good news is that once I realized the 10% rule wasn’t a great one to follow, I was able to calculate my target retirement goal and increase my savings rate.

To make sure you don’t fall into the same trap I did, don’t trust the conventional wisdom when it comes to retirement savings. Instead, figure out how much money you’ll need and come up with a personalized savings plan.

Don’t worry if you can’t hit your savings goals all at once — it took me a few gradual increases to get up to saving around 18% of my income. But by investing raises before you get used to living on the extra and finding ways to cut costs, you can hit your savings targets, too. 

2. Trying to live on an unrealistic budget

When I first graduated from college, I was obsessed with paying off my student loans and wanted to use as much extra money as possible to get rid of that debt. So, when I made my budget, I allocated almost all my cash to student loan repayments and left myself hardly any money for food, entertainment, transportation, or other needs and wants.

Month after month, I found myself frustrated that I wasn’t living up to my spending goals — and it started to feel like trying to live on a budget wasn’t ever going to be possible. And I was right: Living on an unrealistic budget doesn’t work. Instead, it’s important to make sure you track spending, get an idea of where your money is actually going, and make tweaks as needed so you can accomplish financial goals while still having enough to live on. 

Now I’ve found that living on a detailed budget doesn’t actually make sense for me at all, so instead I’ve automated my payments to savings and other essentials and then I live on what’s left over. While this approach won’t work for everyone, it’s important you experiment and find a budgeting solution that feels comfortable for you — otherwise you won’t stick to it. You could use a 50-30-20 budget, for example, or a budget that allocates every dollar, depending on how you best like to manage your money.

3. Failing to set detailed financial goals

Another big money mistake I made right out of college: not setting my financial goals the right way. I had lots of ideas about what I wanted to do with my money, like paying off those aforementioned student loans, saving for retirement, and buying a house. But I had only a vague idea of how much money I’d actually need to do these things. 

Unfortunately, this left me with no plans for how much I should be putting toward each goal. As I mentioned above, this meant I wasn’t saving enough for retirement — and I was also putting way too much money toward paying down low-interest federal student loans. And, as far as saving for other things like my house down payment, I’d just randomly deposit money when I had extra — which isn’t exactly the best way to ensure you’re on track for a big accomplishment. 

Fortunately, once I started learning more about goal setting, I figured out my goals had to be specific, measurable, and attainable — and that I had to track my progress if I was serious about achieving anything. By setting detailed financial goals, such as saving for a down payment in two years and paying off student loans in five, I was able to appropriately allocate funds. And I was also more motivated as I monitored the growth of my savings accounts and the decline of my loan balance.

If you want to maximize your chances of success at any financial endeavor, be sure to set detailed goals for yourself. Know exactly how much you need to save for each goal and when you want to hit your target; use this info to decide how much to save each month; and track your progress. If you do these things, you’re much more likely to achieve your dreams. 

Don’t make the money mistakes I did

Now you know three of my biggest financial blunders. I hope you can avoid making the same errors I did so you won’t waste years saving too little for retirement, struggling to live on an impossible budget, or making little progress toward your important financial objectives. 

More mistakes to avoid: Four common errors when hiring a financial advisor

More mistakes to avoid: 10 mistakes people make online

The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

Offer from the Motley Fool: The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

As a financial advisor shortage looms, college programs look to help fill the talent gap

“We get more job offers than we have students,” Dean said.

And while that’s great for the students, the industry is still behind.

“We’re trending in the right direction, but we need to trend that way a lot faster,” Dean said.

Other schools are getting that message and adding financial planning programs of their own.

The idea for Central Washington University’s program came after the dean of its College of Business spoke with an alumnus in the CFP profession, who lamented that there were a lack of college programs.

That was in 2015, and by fall 2018 the school had hired Steele Campbell, a personal financial planning Ph.D. student at Texas Tech University in Lubbock, Texas, to help grow the program.

Today, Central Washington University has 18 students graduating from the program in June, and expects around 50 majors in the fall.

The program is special to Steele for two reasons. As a Washington native, he had to leave the state to pursue his financial planning education. Now, that is no longer necessary in order to find a CFP-registered program, he said.

Plus, he can also promise every student that they can get a job in what they are studying, which gives him a “great deal of joy.”

“I would love to take as many students as we can get into the program without sacrificing the quality,” Steele said.

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At the University of Arizona, the school’s new financial planning program is just wrapping up its first academic year.

The school had hoped for up to 20 students declare it as a major. They currently have about 40, according to Rick Rosen, program director of the financial planning program at the University of Arizona.

That includes some seniors who have rearranged their entire majors, Rosen said.

The Tucson-based school, with about 45,000 total students, offers ample exposure to Wall Street firms with offices in Phoenix, such as Charles Schwab, Vanguard and TIAA, Rosen said.

“It was a program that every one of us felt we needed,” he added. “It’s an industry that is rapidly growing.”

That goes particularly as baby boomers in or near retirement prepare to hand their wealth over to younger generations. “There clearly was a shortage in qualified people to assist in that endeavor,” Rosen said.

As the industry works to fill seats that are being vacated by older advisors, it is turning to different sources for new talent.

That also includes accelerated certificate programs, where students take about six classes and then take the CFP exam.

For advisors who do not have a college financial planning program in their area, that can mean turning to other ways to fill positions.

Three money mistakes I’ve made that you can avoid

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When it comes to managing money, even mistakes that seem small could end up being costly. That’s why it’s important to learn from mistakes made by others so you can make smart financial decisions from the start.

Unfortunately, I made plenty of money mistakes when I graduated from school — but the good news is you can earn from my errors. Here are three big mistakes I made that I hope you can avoid by learning from my bad example.

1. Investing too little of my income

When I got my first job out of school, I signed up for the company retirement plan. I’d always heard that you should contribute 10% of your income, so I did that right away — and kept doing that for years. It wasn’t until over a decade later that I actually sat down, did the math, and realized investing 10% likely wouldn’t give me enough to be comfortable in retirement.

For more than 10 years, I was investing too little, since I hadn’t taken my own retirement needs into account — and that’s time I’ll never get back. The good news is that once I realized the 10% rule wasn’t a great one to follow, I was able to calculate my target retirement goal and increase my savings rate.

To make sure you don’t fall into the same trap I did, don’t trust the conventional wisdom when it comes to retirement savings. Instead, figure out how much money you’ll need and come up with a personalized savings plan.

Don’t worry if you can’t hit your savings goals all at once — it took me a few gradual increases to get up to saving around 18% of my income. But by investing raises before you get used to living on the extra and finding ways to cut costs, you can hit your savings targets, too. 

2. Trying to live on an unrealistic budget

When I first graduated from college, I was obsessed with paying off my student loans and wanted to use as much extra money as possible to get rid of that debt. So, when I made my budget, I allocated almost all my cash to student loan repayments and left myself hardly any money for food, entertainment, transportation, or other needs and wants.

Month after month, I found myself frustrated that I wasn’t living up to my spending goals — and it started to feel like trying to live on a budget wasn’t ever going to be possible. And I was right: Living on an unrealistic budget doesn’t work. Instead, it’s important to make sure you track spending, get an idea of where your money is actually going, and make tweaks as needed so you can accomplish financial goals while still having enough to live on. 

Now I’ve found that living on a detailed budget doesn’t actually make sense for me at all, so instead I’ve automated my payments to savings and other essentials and then I live on what’s left over. While this approach won’t work for everyone, it’s important you experiment and find a budgeting solution that feels comfortable for you — otherwise you won’t stick to it. You could use a 50-30-20 budget, for example, or a budget that allocates every dollar, depending on how you best like to manage your money.

3. Failing to set detailed financial goals

Another big money mistake I made right out of college: not setting my financial goals the right way. I had lots of ideas about what I wanted to do with my money, like paying off those aforementioned student loans, saving for retirement, and buying a house. But I had only a vague idea of how much money I’d actually need to do these things. 

Unfortunately, this left me with no plans for how much I should be putting toward each goal. As I mentioned above, this meant I wasn’t saving enough for retirement — and I was also putting way too much money toward paying down low-interest federal student loans. And, as far as saving for other things like my house down payment, I’d just randomly deposit money when I had extra — which isn’t exactly the best way to ensure you’re on track for a big accomplishment. 

Fortunately, once I started learning more about goal setting, I figured out my goals had to be specific, measurable, and attainable — and that I had to track my progress if I was serious about achieving anything. By setting detailed financial goals, such as saving for a down payment in two years and paying off student loans in five, I was able to appropriately allocate funds. And I was also more motivated as I monitored the growth of my savings accounts and the decline of my loan balance.

If you want to maximize your chances of success at any financial endeavor, be sure to set detailed goals for yourself. Know exactly how much you need to save for each goal and when you want to hit your target; use this info to decide how much to save each month; and track your progress. If you do these things, you’re much more likely to achieve your dreams. 

Don’t make the money mistakes I did

Now you know three of my biggest financial blunders. I hope you can avoid making the same errors I did so you won’t waste years saving too little for retirement, struggling to live on an impossible budget, or making little progress toward your important financial objectives. 

More mistakes to avoid: Four common errors when hiring a financial advisor

More mistakes to avoid: 10 mistakes people make online

The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

Offer from the Motley Fool: The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

Four reasons you should start paying down your debt now

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Being in debt isn’t a whole lot of fun. And it can also be a big financial disaster, depending how much you owe and what kind of debt you have. The good news is that there are proven methods to pay down debt — but the bad news is you have to get serious about debt repayment if you really want to become debt-free. 

If you aren’t currently working on a debt payoff plan, here are four good reasons why you should definitely start paying down your debt now.

1. You’re wasting money on interest

Debt is almost never free — you have to pay interest when you borrow. These interest costs can really add up, especially if you pay only the minimum on credit card payments. In fact, if you borrowed $5,000 on a card at 15% interest and paid a minimum payment equal to the lesser of 2% of your balance, or $10, you’d end up paying $7,789.37 in interest charges. And you’d be paying that balance off over more than three decades!

While this is an extreme example, interest is almost always costly on consumer debt. Even a $30,000 car loan at 4% paid off over 60 months would cost you more than $3,000 in interest. This is more than 10% of the cost of the car, assuming you financed the full purchase price. The longer you carry debt and the higher the interest rate, the more you’ll pay over time. 

If you don’t want to make every purchase cost more, work on paying off your debt ASAP. After all, don’t you have better things to do with thousands of dollars than sending the money to banks or credit card companies?

2. Your debt is making money management harder

Most debts are paid on a monthly basis. When you have credit card bills, car loans, student loans, personal loans, and other debts to pay, all these monthly payments take up a big percentage of your paycheck. This leaves you with less money to do other things — like purchasing the essentials, saving for college or retirement, or working toward accomplishing financial goals such as buying a house.

If you can pay off your creditors, all this money you were sending to debt payments would be yours to keep. That $30,000 auto loan at 4% interest over 60 months, for example, would cost you around $552 per month. If you invested $552 monthly over 30 years instead of sending it to a car loan lender, you’d end up with over $670,000 if you earned a 7% return on investment. That’s a pretty nice retirement nest egg you could build if you weren’t stuck sending that money to a lender every month. 

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3. Your debt is dragging down your credit score

When your credit score is determined, your credit utilization ratio is taken into account. This is the amount of credit you’ve used versus the credit available to you. A person with a $1,000 balance with a $10,000 credit limit is using 10% of available credit, so he or she has a credit utilization ratio of 10%. 

A credit utilization ratio above 30% is a red flag because it indicates you may be too deeply in debt and not able to manage your payments effectively. A lower utilization ratio, on the other hand, can boost your score big-time. By working on paying off credit card debt, you can reduce your credit utilization ratio, and your credit score should go up as a result of your efforts. 

Your record of on-time payments that you make while working on debt payoff should also help you earn a better credit score. And, since employers may check your credit along with auto insurers and other companies you do business with, having a good credit score is really important. 

4. Your debt could make it harder to borrow for important things

While you want to borrow as little as possible to avoid owing interest, there are times when borrowing is necessary — and even makes financial sense.

If you need to borrow to grow a business or pay for college, this investment in yourself could pay off by significantly increasing your income. And most people need to borrow to buy a home, which can be a good thing, since homeowners tend to have a higher net worth than renters. 

Unfortunately, if you have a lot of debt, it will be harder to get approved for loans that actually help you accomplish worthy goals. That’s because most lenders look at your debt-to-income ratio, which is calculated based on your debt relative to your income. A debt-to-income ratio that’s too high could result in a loan denial or you could be charged a higher interest rate if you’re allowed to borrow at all.

By paying off your debt, you can lower your debt-to-income ratio so lenders view you as a less risky borrower. This would enable you to get loans on good terms when you really need them. 

Start making a plan now

As you can see, working on debt pay down is very important — and it isn’t something that can wait. So, make a plan today to allocate extra money to paying debt; figure out which debts you want to pay off first; and start working on becoming debt-free. When you accomplish your goal, you’ll be very glad you made the effort — especially as you start to do big things with all the money you’re saving on interest. 
 

The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

Offer from the Motley Fool: The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

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Everyone wants to be debt-free, but you could be making this goal impossible to reach if you continue to do these things.
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New College Graduate? Here’s Some Money Advice | Here & Now

There are more than 1.8 million people graduating from college this year in the U.S., and as they begin their careers and begin paying off student loans, they’ll need to know how to manage their finances.

Here Now‘s Peter O’Dowd talks with CBS News business analyst Jill Schlesinger (@jillonmoney) about her financial advice for college graduates.