You are about to add a new member to the family. Finance doesn’t seem to be a problem in your household since your income has exceeded your expenses this far and you have accumulated an enviable net worth. Due to the fact that your finance has been well up to this date you believe financial planning is not necessary. Burt believes it is safe for Emily to quit her job due to his 10% pay raise and that you can cut down in luxuries and sell your stock shares if needed.
Financial planning is necessary for a good financial future.
Although you don’t believe financial planning is necessary due to how well your finance have been, you should always have plans due to changes that can occur at any time. If you continue to manage your finances as described there will be unpleasant consequences in the long-run. There isn’t much planning and your financial stability may turn at any time. There isn’t much savings in your accounts either; saving accounts, emergency money and accounts for retirement are necessary for not only a successful financial future but, for your entire future.
With a new baby in the family new unexpected expenses will arrive, you must include these expenses in your planning. You must be ready for unexpected financial planning all the time. The state might decide to raise taxes, you may lose your home or even your job. Without financial planning you will not be prepared for these changes. With your expenses and income extremely close you cannot afford any changes.
Although Burt’s plan sounds wonderful, there are fallacies in your argument. Although you will be getting a raise that still isn’t enough to cover the expenses you will have. In the balance sheet for 2014 you can see that your expenses are way more than your expected income. Even with the amount of luxuries and travel expenses lowered you alone will still not make enough to cover those expenses. This year the amount of expenses and income came very close due to the purchase of stocks. You believe if you don’t buy any more stocks you’ll be fine. However, you must be saving money that was not mentioned in the information given.
In the long term you will have many debts to pay off and no money in any emergency accounts and you also have no retirement savings. You must also be aware of rising inflation which may happen at any time, inflation decreases the worth of your money. The inflation rate will make your pay raise not worth as much as you believed it was worth. Your raise is only about $6,400 excluding the income tax that will be removed from that yet, you are removing $25,048 from your family’s income. If inflation raises your net worth won’t be worth much money at all.
You have to start your financial planning as soon as possible. You have to set goals and dates for these goals, you have to use this planning as a map to get to the financial future that you wish to have.
The way you are guiding your financial situation is without out a guide or map. If a change in your financial status were to change you would not be prepared. The most important