Financial Wellness co-columnist Fritz Wood is a veterinary industry veteran with a special interest in finance. He works with Triune Financial Partners to connect veterinarians with experienced, independent financial planners. He is the former personal finance editor of Veterinary Economics and was a treasurer and board member at the American Veterinary Medical Foundation. He holds bachelor degrees in accounting and business administration from the University of Kansas.
Robert A. Sparrow
Financial Wellness co-columnist Robert A. Sparrow is a partner with Triune Financial Partners LLC. He helps his clients learn how to live within their means, save, avoid debt, give generously, and set goals – the five fundamentals to leading a financially stable life. He specializes in resolving complex financial situations, and serves clients facing big life changes, such as the sale of a business or the transition into retirement. Learn more at triunefp.comRead Articles Written by Robert A. Sparrow
A crude definition of financial life planning is bringing the future to the present while you still have time to act. More formally, it’s the process of organizing your financial goals into something workable so that you can live in financial security in the style you desire. Financial life planning involves the proper handling of cash flow, assets and liabilities. It’s the way to get from where you are now to where you want to be.
As management consultant Peter Drucker said, “The best way to predict the future is to create it.”
The financial life planning process is relatively straightforward:
- Determine what you have. Prepare a personal financial statement. The document lists your assets, liabilities and net worth. We recommend getting a handle on your cost of living, which might include tracking expenses over a defined period.
- Determine what you want to achieve. Do you have short-term financial goals, such as eliminating credit card debt or a car loan, building an emergency fund, buying a home, or starting a regular investment plan?
What about long-term objectives? Although each of us conjures a unique picture of ourselves, we often have many of the same thoughts:
- Financial independence. When you have it, you are not dependent on the state or federal government, your children, your parents, your siblings or your paycheck. Work is optional.
- Financial contentment. No money worries or anxiety.
- Ownership of a comfortable home.
- The ability to help your children get a college education.
- The means to donate to meaningful causes, travel and make memories with family and friends.
Be certain to have an accurate picture of the future. Focus first on your needs, then your wants and finally your wishes. Remember that it is never too late to begin. Start today.
You Can Do It
The first and most important rule of retirement planning is to pay yourself first. If you’re under age 40, set aside at least 10% of your income each year. Fifteen percent is better. This is money that will make work optional for you someday, not money for your next Caribbean getaway or next car. If you’re older and haven’t invested much, you’ll need to set aside a higher percentage.
Where to begin? Your first investing priority is at work. If your employer provides a retirement plan, start there. Many employers match some portion of your contribution to encourage participation. It’s free money. And since your contribution is automatically subtracted from your paycheck, it’s out of reach. Another bonus: The money goes into the retirement plan before it’s taxed. The money will grow and won’t be taxed until withdrawal, but that might not be for decades.
If your employer doesn’t offer a retirement plan — sadly, too many private veterinary practices don’t — it’s up to you. But you can still save in a tax-smart way by investing in a Roth IRA. You’ll fund it with money that’s been taxed, but assuming you follow the rules, money withdrawn years later is tax-free. Many mutual fund companies offer the option of having a preset sum transferred from your checking or savings account each month. This autopilot approach eliminates the chance that you’ll forget to save or will spend the money on less worthy items.
The idea is simple: You can’t spend what you don’t have.
Get Your Priorities Straight
Don’t consider investing until your financial house is in order. For example:
- Are potential catastrophic risks covered by insurance? Do you maintain adequate health, life, disability, long-term care, property and casualty, and professional liability insurance?
- Do you have an ample emergency fund? Have you arranged access to cash totaling three to six months of living expenses? Have you considered any large expenses you might incur in the next year or two? Consider when you might have to replace your car. You don’t want to be caught short of cash and be forced to liquidate a long-term investment to pay for a short-term need.
- Do you carry a zero balance on all your credit cards?
If you thoughtfully and honestly answered “yes” to all those questions, then you’re a candidate for investing.
Time Is on Your Side
When investing, nothing is more valuable than time. No one complains that they began investing too early or at too young of an age. Albert Einstein was famously quoted as saying, “Nothing is more powerful than the power of compound interest. It is the eighth wonder of the world.”
Consider this scenario: Someone who starts investing at age 35 and contributes $200 a month to a Roth IRA will have about $436,000 at age 65, assuming a 10% annual return. But had the investor started contributing $200 a month at age 25, he or she would have accumulated almost $1,170,000. What a difference the first decade makes! Since compounding helps money grow exponentially over time, even small contributions can have a big impact when you’re ready to retire.
We’ve shared two of the most important ingredients in building financial independence: Start now and pay yourself first. Here are three final thoughts.
- Read “Saving and Investing,” a helpful consumer resource from the U.S. Securities and Exchange Commission, at bit.ly/36F92Mv.
- Meet with a certified financial planner to get help with creating and implementing your financial life plan.
- Understand that you’re never too young or too old to worry about your financial future. Even a little money can go a long way toward building a secure retirement. Investing is relatively painless, creates wealth and will make work optional for you at some point.
What are the biggest threats to your future financial security? Here are a few:
- Doing nothing or waiting. Time is your best friend or your worst enemy.
- Historically, prices increase by about 3% annually. Prices double about every 24 years.
- Failing to diversify. This is a particular risk for veterinary practice owners.
- Investing too little.
- Investing too late.
- Failing to adequately insure against catastrophic risks.