Use A Financial Planning Tool To Help With Current, And Future, Finances

Most people think of using a financial planning tool only for looking far into future, but a good planning tool will also help you with current issues as soon as you start using it. To help figure out what your needs will be many years from now, you need to start with what your current needs are, and that means itemizing your current expenses. All of them. You don't need to go down to a granular level and list what you spend on paper towels every month, but you do need to list out as many categories as is practical. This includes your true needs (rent, food, etc.), as well as "wants", like having a night out with friends, or a little money to spend on "whatever, "whenever". The needs will usually be approximately the same amount every month, while the wants may vary. Enter an average monthly amount for any category that tends to vary from one month to the next. Any planner that's worth using will offer a way for you to easily itemize your current expenses, and will automatically show you each expense's % of the total. Without a written budget:

• You can't pinpoint where your money is really going.
• You can't make responsible decisions about your true ability to save, especially over time, plan for
  emergencies, or figure out what other financial options are available to you.
• You don't know what is an appropriate amount to spend on each category to stay financially healthy.
• You can't accurately evaluate how much discretionary income you really have in the first place.

Also, knowing each expense's % to the total is a general way to asses your financial health. Here's a simple example - the amount of your mortgage payment (including real estate taxes and insurance) shouldn't be more than 33% of your gross income (that's if you have no other debt). Ideally, it should be no more than ~28%.  Why? Most lenders won't even consider you for a mortgage if your debt (mortgage plus all other debt) to income ratio is higher than 30% - 33%, because a ratio that high will make it too difficult for you to make the payments. (This ratio applies to rent/renters insurance as well.)

There are lots of opinions about how much should be spent for fixed expenses (such as food at 12% - 14%?) vs. discretionary expenses, but if you don't know where your money is going in the first place, you can't make intelligent decisions about anything. The time it takes to assemble this information is minimal compared to the benefits it will provide. Knowing what your specific expenses are now, is also 90% of figuring out what they may need to be in the future. If you're going to have to figure it out anyway for retirement planning, get a jump on it now to make sure that you're set up for future financial success. After all, your future financial security depends on the actions that you take now. Use a retirement planner to assess your current financial situation, as well as for your future needs and goals.

Only 33% of households have a written budget, and only 28% have a written financial plan. You can easily accomplish both at the same time with a good financial planning tool (yes, like The Complete Retirement Planner!).

There are other less tangible reasons for knowing the details of your finances that point to financial discipline, fiscal responsibility, and generally being financially well informed. Since you're reading this, you're already taking steps to be informed. If you're going to use a financial planning tool, take full advantage of it and use it to assess your current finances as well.

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