12 Emotional Signs You Need a Financial Plan
By Kevin Estes
When to Plan
When do you need a plan? The time might be now if money stirs up strong emotions!
You might need a financial plan if…
You lose sleep thinking about money.
You fret when the market drops.
You watch financial news more than once a week.
You spend more than an hour a week on finances.
You want to travel but can’t afford it.
You worry about healthcare costs.
You fear Social Security will go bankrupt.
You worry you may never be able to retire.
You feel you need $1, $3, $5, or $10 million to retire.
You think retirement is quilting/shuffleboard/Bingo!
You believe your finances will “work out eventually.”
You feel your money could do more.
Let’s explore each.
1. You lose sleep thinking about money.
Worrying about money is counter-productive.
Less sleep can cause someone to underperform at work. That can lead to less income or even a job loss.
We make poor decisions when we’re stressed. That’s part of why I generally suggest people keep at least three to six months’ of living expenses in an emergency/opportunity fund.
Even the wealthy can slip into a scarcity without ready access to funds!
2. You fret when the market drops.
The worst thing to do when markets fall is panic sell.
Cash Cushion
A big enough emergency and opportunity fund helps insulate from a downturn. Not all of the portfolio will fall!
You might be able to wait longer to sell investments. Cash buys time for a recovery.
Risk Tolerance
If you’ve lost it when markets have fallen in the past, your investments may not align with your risk tolerance.
Although I feel risk capacity matters more, risk tolerance is still important. An assessment is an important part of a comprehensive financial plan.
Environment
It’s worth considering how you get news when markets react.
Do you speak with a trusted investor or advisor who’s been through multiple downturns?
Do you discuss it with family, friends, and coworkers? Do those conversations calm you or raise your blood pressure?
Do you watch financial news - complete with shouting heads and doomsday predictions?
3. You watch financial news more than once a week.
Media’s primary goal is to get you hooked on their channel.
The entertainment value is off the charts.
The financial value? Not so much.
When I watch financial news, I get excited and sometimes anxious. That’s why I rarely watch it!
If you consume more than an hour of financial news a week, consider reinvesting that time somewhere more productive.
4. You spend more than an hour a week on finances.
An hour a week is a good goal for how much time to spend on personal finances total!
Spending more could be a sign of other issues:
not having a large enough emergency/opportunity fund,
investing more aggressively than your risk tolerance,
worrying with family, friends, and coworkers,
watching too much financial news,
spending more than income…
Time spend on finances can be either:
an investment that saves time or
an administrative cost.
Automation is a good example of a time investment. It takes a bit to set up automatic payments which then save time.
Energy spent on “drinking bird” tasks could be redirected to better uses. How could you set yourself up to benefit from inertia?
5. You want to travel but can’t afford it.
If travel’s important to you, now might be the right time to go!
Our senses diminish with age. Rome literally may not look, smell, or taste the same in 20 years.
We might not be able to do what we can now:
Bicycling through Provence could be a challenge at age 50.
Doing so at 90 is nearly miraculous.
Consider those close to you:
children grow up and start families of their own,
friends lose mobility,
family members pass...
Although it may be tough to afford a trip earlier in life, it’s physically possible. That may not be the case later.
6. Your worry about healthcare costs.
Yes, healthcare costs generally rise with age.
However, total household spending trends down after age 55.
Category Spending
Healthcare is a small percentage of income early in life. It grows to the second largest expense category by age 75.
However, healthcare spending at 75+ is still lower than four other category expenses at age 25-64:
housing,
transportation,
pensions and Social Security, and
food.
After age 55, households spend less on:
children - once they move out of the house and graduate,
housing - as mortgages are paid down,
food - since they eat less, go out less, and get senior discounts,
transportation - as they drive less and own fewer vehicles,
pensions/Social Security - especially once they stop working,
entertainment - as they attend fewer events, and
clothing - since there’s less need to dress to impress.
Healthcare
Even healthcare has a surprisingly consistent element.
Insurance premiums accounted for 61-71% of total healthcare expenses across all age groups! Health insurance is also moderated by Medicare starting at age 65.
7. You fear Social Security will go bankrupt.
The Social Security Act was passed in 1935 - nearly 90 years ago!
Funding Status
According to the 2024 Social Security Trustee Report, the Old-Age and Survivors Insurance Trust Fund is expected to be depleted in 2033. That assumes no major changes to the program.
In 2033, the Old-Age and Survivors Insurance is expected to be:
sufficient to pay 79 percent of OASI scheduled benefits.
Fortunately, OASDI total income was close to its cost in 2023:
income of $1,351 billion and
cost of $1,392 billion.
The projected depletion was extended a year from the 2023 report largely based on economic growth (Gross Domestic Product).
Tax Rate Changes
The payroll tax both employees and employers pay for the Old-Age, Survivors, and Disability Insurance (OASDI) has risen over time:
from 1% in 1937
to 6.2% since 1990.
Normal Retirement Age
Congress passed a law in 1983 to delay the normal - or full - retirement age from 65 to 67.
The normal retirement age increase was phased in over 23 birth years:
from 65 for those born in 1937 or earlier
to 67 for those born in 1960 or later.
The law passed in 1983 - over 40 years ago! Those born in 1960 are about 64 years old now so the change still hasn’t fully taken effect.
If history is a guide, Social Security benefit changes would likely be communicated well in advance.
Political Nightmare
Americans feel they have right to benefit from the system they funded. Reducing benefits for retirees would be a political nightmare.
Assuming no Social Security benefits is likely overly pessimistic. It probably doesn’t make sense to ignore Social Security altogether.
8. You worry you may never be able to retire.
You could be less behind than you think!
Working until full retirement age could lift Social Security benefits.
Retirement accounts can benefit from catch-up contributions.
Household expenses may fall… and more!
At 7.2% annual growth, investments could double about every decade.
A 40-year-old might see $200,000 grow to roughly:
$400,000 by age 50,
$800,000 by age 60, and
$1.6 million by age 70.
9. You feel you need $1, $3, $5, or $10 million to retire.
Round numbers are arbitrary. Consider the definition of a millionaire.
As of eary November 2024:
a million Canadian dollars is about $720,000 US dollars and
a million British pounds is about $1.29 million US dollars.
Using a round number as a financial guide is not best practice. A comprehensive financial plan can be more informative.
10. You think retirement is quilting/shuffleboard/Bingo!
Financial independence provides the opportunity to do what you like.
It’s tough to consider other lifestyles while working full-time or more!
Dream a little.
Visualize your perfect day.
What did you do?
Who did you spend it with?
At some point, wealth becomes more about who than what.
Below are some resources which may help:
The Long View podcast, Fritz Gilbert: Early Retirement Made Simple
George Kinder’s Three Questions
Ernie Zelinski’s How to Retire Happy, Wild, and Free
11. You believe your finances will “work out eventually.”
Hope is not a plan. Ignoring a problem rarely makes it better.
Time is our greatest ally. Starting now can help.
Look at how $200,000 could grow with a 7.2% annual return:
12. You feel your money could do more.
Some things just take time.
However, you may be right! An objective review of your finances may uncover significant opportunities.
I hope this helps!
If you’re interested in a review of your situation…
Disclaimer
In addition to the usual disclaimers, neither this post nor these images include any financial, tax, or legal advice.
