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If we’ve learned anything over the past couple of years, it’s that life will never run out of curveballs.

But while nobody can predict all the challenges, rewards and financial ups-and-downs we’ll face in the future, it is a certainty that regardless of the unknown, having a plan in place is key to making the most of your assets, reaching your goals and reducing money stress.

What to Do – and Why

Most Americans expect their financial situation to improve this year – and that’s not surprising: 2020 was difficult and unpredictable, bringing into sharp focus the need to plan better for our financial well-being. Seventy percent of Americans say their financial plan needs work, according to Northwestern Mutual, yet only about one-third have a documented financial plan they can turn to for reference and guidance.

Creating a financial plan involves determining short-term and long-term needs, then defining goals you’d like to achieve. Goals are critical in developing a plan: Look toward goals that inspire you to take the next step and make them into a reality by directing your money toward decisions that will get you closer. Your goals should:

  • Be specific. This will help remind you exactly what you’re working for, so you can keep your aspirations on track.
  • Be tied to a time frame. We like the term "time horizon" as opposed to "deadline," but in either case, you want something closer than just "someday" because "someday" is too easy to keep pushing into the future.
  • Be measurable. The finish line matters, and you want to be able to track your progress along the way.

Once you’ve established your goals, it’s time to get to work reaching them.

Budgeting Basics

It can feel overwhelming to start creating a budget – but it’s one of the most powerful financial planning steps you can take. We highly recommend using a budgeting spreadsheet and beginning with the straightforward 50/30/20 budget approach.

To get started, organize your monthly expenses into three categories: needs, wants and savings.

  • Needs include nonnegotiable spending items, such as:
    • Mortgage or rent payments
    • Utility bills
    • Car payments
    • Medications
    • Medical insurance premiums
    • Childcare expenses
    • Groceries (we’ll address these under "wants" as well)
    • Minimum debt payments

    The idea of the 50/30/20 plan is to put 50% of your monthly income toward these needs.

  • Now let’s discuss wants – and how they’re different from needs.
    • Some are obvious – dining out, streaming video services and gym memberships, for example, are wants.
    • You should also break down your grocery list with a critical eye to separate the household staple needs from wants like special desserts or wines and cheeses.

    It’s also helpful to prioritize your wants in case you’d like to cut some expenses. Having an idea of what you’re willing to give up for a while will make it easier to do so, with the goal of allocating 30% of your monthly income toward wants.

  • Your third budget category – the "20" in the 50/30/20 approach – encompasses savings, investments and additional debt payments. Aim to put 20% of your monthly income toward this category.

The 50/30/20 plan can help provide clarity on your expenses and serve as a general guideline, but you may need to make adjustments to fit your situation. If your needs exceed 50% of your income, then you should expect to reduce the percentage spent on wants and savings.

Making Your Money Work Harder for You

Not all dollars are equally spent. Make sure you’re getting the most out of your money, putting it where it will work the hardest for you to help you reach your financial goals.

  • Maximum match. If you’re making contributions to a 401(k) with an employer match, then strive to deposit the maximum amount your employer will equal. The math checks out: The more you put in, the more they’ll put in for you, and that pays off long term.
  • High before low. Try to pay off high-interest debt before lower-interest debt. The extra money you put toward the former reduces your total payback more effectively.
  • For emergencies. Having an emergency savings fund is important to financial planning because it gives you a way to address unforeseen challenges without getting your budget off track. Build yours by closely examining your needs and wants, and by automating some savings each month through direct deposits or automated transfers. You can also take advantage of special programs like KeyBank’s EasyUp®, which sends money – from 10¢ to $5 – to your savings account every time you make a debit card purchase.

Explore investments by consulting with a financial advisor who can make the right recommendations to help you meet your short- and long-term goals.

Don’t Wait

Anytime is the right time for a financial plan because having one can help you navigate some of life’s biggest moments.

Buying a home, getting married, starting a family and transitioning to retirement are all important milestones – and having a financial plan in place for each one can help alleviate money stress.

A financial plan also helps improve your financial stability, which allows you to pay down debt more quickly, identify the right time to increase contributions to savings or retirement plans, use insurance to protect your finances, build up your emergency funds, and achieve your financial goals. Regularly tracking your progress makes it all possible.

The right plan for you doesn’t have to be complicated – it just requires paying attention and keeping track of your progress. The most important thing is that you get started.

We’re happy to help, and we’re here if you need us. Feel free to get in touch with a KeyBank advisor to start your planning.

This material is presented for informational purposes only and should not be construed as individual tax or financial advice. KeyBank does not provide legal advice.

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