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Financial Planning is the Art of the Possible #FinancialPlanning #InvestmentAdvice

Every financial planner, investment advisor, and financial pundit will tell you to maximize your 401(k) and IRA contributions. Now that those contribution limits depend upon whether you are over age fifty (50), and the calendar year for which you do it, the total you can save is $16,500 in your 401(k) and $5,000 in your IRA if you are under 50, and $22,000 in your 401(k) and $6,000 in your IRA if you are 50 and above. These levels are indexed to rise further later. Because of the way Congress wrote this law, these numbers are guaranteed to change sometime in the near future.

If your family is earning the median income of about $50,000, or less, those amounts are totally irrelevant. Obviously, you will want to save something in your 401(k) and/or IRA every year, but if you are earning $50,000, and you are supporting a family, and you have any expenses in your life, saving $21,500 or $28,000 just in your retirement accounts is unrealistic.

The decision you will have to make is how much you will save in your retirement accounts. You will base it upon your current financial situation, your goals, the savings vehicles available to you, and how much the law allows, rather than simply how much the law allows. Like most financial planning decisions, it is not a purely quantitative calculation.

Qualitative factors (i.e. your goals) also play a large role in your decision. If you are saving for a car, you will want to save money outside of your retirement plans to meet that goal. Determining how you will allocate your money to achieve different goals is a large part of financial planning.

I know writing about qualitative factors may start to sound a little too “touchy-feely”, but how you feel about money, work, savings, etc., all goes into your decisions. You cannot ignore your feelings and emotions. After all, the purpose of financial planning is to manage your money to achieve your goals, which are largely driven by your emotions and feelings.

This is an example of one of the types of decisions you will make, and it is one of the more important ones. Not everyone needs to do complex estate planning or college funding, or purchase a second home, but everyone should ensure that they will be able to afford to retire at some point in their lives, whether or not they ever choose to do so. Most people need to accumulate money throughout their working lives.

Michael Garry Yardley Wealth Management

Author Michael Garry Yardley Wealth Management

Michael Garry is a CERTIFIED FINANCIAL PLANNER™ practitioner and a NAPFA-registered Financial Advisor. He is a member of the National Association of Personal Financial Advisors (NAPFA) and the Financial Planning Association (FPA).

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