What Does Donald Trump's Hair Have To Do With Financial Planning?
Even in a divided country, I think there is one thing all republicans and democrats can agree on; Donald Trump’s hair looks terrible. There are so many unanswered questions; Is his hair real? If it is real, how much hair does he actually have? Is it just one long strand wrapped all over his head? Even after all the talk on TV and in the media, there is one person that still think his hair looks good, Donald Trump. I’m sure you’re thinking by now, what does this possibly have to do with financial planning?
As an advisor, there is one common theme that I seem to run across. People seem to remain or choose to remain unaware of their financial situation. Luckily, not everyone’s finances are as bad as Trump’s hair, but most people could use a good look in the mirror. So, how do you know if your finances look good or not? Here are three things you can do to see if you need a makeover:
Check Your Savings Rate
Most people when it comes to their finances will focus on their rate of return. What did my mutual funds earn last year? Is my account balance higher or lower? While rate of return is important, your savings rate will have a much larger impact on your financial situation. What percentage of your income are you saving per month? Do you know? A good rule of thumb is to save between 15-20% of your income. If you’re thinking that savings rate is impossible try to increase your savings every time you receive a raise and eventually you’ll get there.
Review Your Asset Allocation
Buy high and sell low is a common theme when it comes to investing, but most investors get into trouble investing with this philosophy. The fact is, timing the market is extremely challenging since you must be right twice (when to get out and when to get back in). Most research shows that your asset allocation will have a significant impact on your overall investment performance. When you’re looking at your portfolio or 401k account make sure that you have a diversified mix of assets and your equity mix is in line with your financial goals.
Determine What Your Assets Can Generate for Income
You see the commercials all the time asking about your retirement number. Just because you’ve saved one million dollars doesn’t automatically mean you can retire. A safe withdrawal percentage is closer to 3% than the traditional 4%. If you had one million dollars and you took a 3% withdrawal, your income would be $30,000. A quick way to determine how much you’ll need would be to take your annual retirement income need and divide it by a withdrawal percentage you’ll feel comfortable with. For example, if you need $50,000, divide that by 4% and you’ll come up with $1,250,000.