Financial Planning as Singular Priority
Living the single life can be expensive. Food, shelter, clothing, taxes, insurance, even pleasurable pastimes--vacations and entertainment--cost more when you’re alone.
But you don’t have to wait for Mr. or Ms. Right--or earn a six-figure salary--to build a firm financial base, says Victoria Felton-Collins, a certified financial planner.
As a partner of Felton-Collins, Woodhouse & Associates in Costa Mesa, she regularly advises people from all income levels. She believes that whether you are a shipping clerk or a corporate executive, financial security is an attainable goal.
The lecturer and author (her book “Couples and Money” is due from Bantam in February) encourages singles to begin the new year by organizing their priorities.
“People often marry for financial security,” she says. “They have planned poorly or painted themselves into a corner by overspending and not saving.”
The financial adviser, who holds a doctorate in psychology, contends that many people lack significant awareness of their own fiscal profile, net income or the amount of debt they owe.
She points out that poor record-keeping causes problems, especially at tax time, and prevents people from viewing spending patterns.
She maintains that financial independence equals more--and better--choices:
“Financial freedom means being able to make the right choices. It means a single person can marry or not, without having to base that decision on economical need. It means not worrying if they have no one to take care of them financially.”
Felton-Collins recommends that singles first “construct a blueprint that will show where you stand.”
She suggests filling out two kinds of statements: A net-worth statement that lists assets and liabilities and a cash-flow statement itemizing incoming and outgoing funds.
Both of these, she says, will provide a realistic view of current financial status and aid in preparing for the future.
Felton-Collins compares a net-worth statement to a photograph--a financial look at the big picture. “A net-worth statement shows what you own versus what you owe.”
Possessions--mutual funds, saving accounts, insurance, automobiles and homes--are weighed against what is owed on them. Credit card bills and bank loans must also be factored into the equation.
She says a cash-flow statement is like a motion picture: The scene always changes. It also reflects ongoing activity: cash coming in from salary, child or spousal support, rental property income, dividends and cash going out.
“I recommend that people make a simple comparative chart for each year,” she says. “If net worth isn’t growing, or if outgo exceeds income, something needs to be done to rectify the situation.”
According to the expert, a money-market savings account for emergencies is critical: “Ideally, one should build a reserve of six months’ worth of fixed expenses: rent or mortgage, car payment, insurance, taxes, all non-discretionary expenses.”
For those who lack sufficient income to fulfill that criteria, she stresses putting away at least three months’ worth of fixed expenses. “And, at the very least, everyone should have a savings account with 8 to 10% of their income going into that savings account.”
A painless way to build net worth, the counselor suggests, is to use a dollar-cost averaging strategy, which she explains this way: “Set aside an amount--let’s use the example of $200 per month--into a mutual fund. When the market is up, your $200 will buy fewer shares; when it is down, (it will buy) more shares. As time goes on, the average cost per share will balance out.”
She believes that by automatically buying into a mutual fund on a regular basis, even an inexperienced investor can play the market. “If most people had to think about when to buy, they would feel incompetent to play the stock market,” she adds.
As for investing, Felton-Collins says there are two ways to invest money: owning and loaning. You may want to own a condo, single-family home, income property, raw land. Or you may wish to loan your money to banks or government: T-bonds, T-bills, treasury notes or mutual funds.
These are individual choices, she says, based on individual life styles, interest and need.
If available, she recommends that singles avail themselves of 401K savings plans that many employers offer employees. Felton-Collins considers the 401K a good investment for future security and believes that recent tax changes benefit the saver.
She adds that nearly all 401K plan employers make contributions to the fund, and some even match employee contributions.
Some people may prefer to open an IRA, Keough or other recognized retirement fund.
“Pick a plan, but do something,” she says. “The benefit of any of these plans, of course, is that taxes are deferred; you are not taxed until withdrawal.”
For singles, the financial expert gives these tips for building security throughout each of the decades in your life:
* Twenties: Avoid credit card abuse. If you have racked up more purchases than you can easily pay off, stop now--before it’s too late--or seek help from a professional who can get you off the plastic cycle.
Start contributing to a retirement plan. It’s hard to persuade a 23-year-old to think about retirement, but the sooner you use a tax-deferred program, the better your payoff will be.
* Thirties: Buy insurance protection. If you have young children, begin to save for their college expenses.
Calculate the expense of renting versus owning your home. In some cases, it may make more sense to rent than to own.
* Forties: Now is the time for home ownership. You may want to consider buying a duplex so you can live in one unit and reant out the other, or get involved in equity sharing with a partner. (This may be a viable choice at any age.)
Contribute a maximum amount to your retirement or savings plan.
* Fifties: Consider long-term health care. Have the proper amount of hospitalization and medical insurance to see you through a serious illness, if necessary.
Plan for life-style changes, such as a vacation home and traveling.
* Sixties: This is a continuation of the 50s. If you have followed a plan that is well thought out, you should be able to enjoy the fruits of your labor with grace and dignity, safe in the knowledge that you are independent.
