Investing in your future can seem like a daunting task in the beginning, but with just a few dollars and some sound advice anyone can launch a plan to achieve financial security.
And it’s never too early to start. Young people coming into the workforce often don’t think about their needs 30 or 40 years down the road. The longer they wait the more difficult it becomes to build a portfolio that will take care of their retirement years or give them the capital they would need to launch their dream business.
“Quite frankly you have to take control of your own financial future and you have to do it right now,” said Jeanie Wyatt, CEO and chief investment officer of South Texas Money Management, Ltd. “If you say you’re going to do it someday it may never happen.”
Wyatt suggested that the best way for individuals to start mapping out their financial future is to develop a budget.
“We tell everyone, even our wealthiest clients, that every single person needs to live by a budget,” she said. “They have to know what they spend and try and match that spending to the inflow of money they have.”
The first step is to tally up all the expenses that must be met to live comfortably. That includes everything from food and housing to utilities and taxes.
“You have to know what you need to spend and match that spending to the inflow of money you have and make sure your inflow is going to support those expenses,” Wyatt said. “It’s a basic framework that’s imperative to remain in good financial condition.”
And keeping a close eye on spending while young, even as your income may increase with better jobs or promotions, is something that will pay off in the long run.
“You have to make a decision early in life,” Wyatt said. “Are you going to eat hamburger now so that you can eat steak in retirement? If you want to be secure in your later life you need to be something of a cheapskate early in life.”
Beyond setting a budget that simply balances out income and expenses, individuals should set aside something in their expense budget to build for the future.
“Savings are important no matter what,” she said. “Even if it’s 5 percent of your income, 1 percent, whatever.”
Many employers offer savings plans that can make investing in the future easy and profitable. In many cases, even people making minimum wage have access to a 401k or other savings plan through their employer.
Wyatt believes a 401k plan is one of the best ways to start building financial security.
“If you are in a job with a 401k plan you can invest some of your income on a pre-tax basis,” she said. “It really is a way for low-income earners to get their foot in the door. And many employers will match some percentage of their contribution.”
401k plans typically invest in stocks and mutual funds that provide dividends to help the individual’s contribution grow into a nest egg for the future.
Wyatt also suggests that individuals interviewing for jobs should make sure to ask about this type of benefit.
“Ask the question when you are interviewing for a job,” she said. “The younger you are the more important that question is. Starting early is critical.”
In today’s world where the daily news is filled with reports of terrorist attacks, stock market volatility and other frightening developments, Wyatt warns investors to maintain a steady course.
“Don’t let the headlines that you see in the media every day scare you too much,” she said. “If you’re getting fearful and waiting to invest, that becomes a real headwind to your security because having a savings plan works. If it’s prudent and planned it will be successful. There’s no doubt about it.”
Over the years, as individuals continue to invest and grow savings, Wyatt also advises to continue to keep a close eye on that budget they used to help lay the groundwork for financial security. One of the biggest threats to staying on plan is the failure to manage debt properly.
“Sometimes it’s smart and prudent to use debt,” she said. “But when it’s used excessively, especially when the economy is down, debt can cause big problems. Having too much debt can lead to a bad credit rating and those are things that make your financial future even more challenging.”
As an example, Wyatt said a $5,000 purchase on a credit card with a 20-percent interest rate, which is not all that uncommon, can become a $10,000 purchase in three years because of the compounding of interest.
“High interest rates, variable rates, very long debt, that’s what I would call bad debt,” she said. “Good debt might be, if you can afford the payments, mortgage debt. That can be categorized as good debt because mortgage rates are very low right now. Mortgage debt is typically very low and very predictable.”
While developing a savings and investment plan is a common goal for individuals thinking ahead to secure a comfortable retirement, many people have dreams of launching their own business and doing what they love instead of working for someone else. And they need to have a built a solid financial foundation to help make that happen because it costs money to start a business and succeed.
But aspiring entrepreneurs also need more than a financial plan; they need to have a business plan that takes into account much more than a dream or personal passion. A solid business plan is just as much an investment in the future as a financial portfolio.
Funded by the Small Business Administration, the University of Texas Rio Grande Valley’s Small Business Development Center offers advice and guidance to people intent on opening the doors on their dreams.
“We’re business advisors,” senior business advisor Aaron L. Gonzalez said. “We work with entrepreneurs to help them get a business started.”
The UTRGV Small Business Development Center offers direct assistance and counseling to individuals as well as some 40 different classes to help people prepare to start or expand their business.
Much like starting an individual savings plan, a business plan must lay a solid foundation for success because statistics show that some 60 percent of new businesses fail in the first two years, Gonzalez said. He added that out of the approximately 1,000 people a year that come to the center, only 15 to 20 percent succeed in opening a business.
“We see people from all different industries, people right out of college, veterans, people who are retired who want to get a business started, teachers looking for supplemental income,” Gonzalez said.
He said people he sees have a business idea but typically little knowledge about how to organize and manage the nitty-gritty side of running a business.
“People have the idea many times but they don’t know how to realize the business side of it,” Gonzalez said. “Before they even go to the bank we sit down with them and go over all the details, what they need in terms of physical equipment and so forth. And we let them know the bank is going to expect them to meet part of the investment.”
Using a restaurant as an example, Gonzalez said the owner must do much more than come up with a name and plan a menu. They need to research everything, including tables and chairs, food costs, kitchen equipment, knives and forks, and marketing needs.
“I always tell them they should figure out every tiny little cost, down to the last napkin holder,” he said. “Sometimes they come in with what they think they need but they don’t drill down enough. That can be very intense for someone just starting a business.”
A small business owner must worry about dozens of functions every day and oftentimes they need to consider outsourcing some aspects they don’t like or need help with, which makes having capital even more important.
“The reason they are starting the business in the first place is to do what they love,” Gonzalez said. “But they need to look to outsource some of the things they don’t like. It may be more cost effective to find someone else to do those things.”
Gonzalez also advises start-up business owners to have enough cash on hand to cover all the expenses, large and small, for three months, without factoring in any sales.
So, whether you want to secure a comfortable retirement or put your talents to work in your own business, the advice from experts is pretty straightforward. Get out a pencil and paper or create an Excel spreadsheet and start planning and investing now.