To establish a financial plan for life you first have to know where your money is coming from – and where it goes.
“We need a budget. We need to know where things come in and things go out. That’s number one,” said certified financial planner Nick Onder, who was a guest on this week’s edition of For Your Benefit, heard live Mondays at 10:00 a.m. on Federal News Radio.
Onder said that, while it is pretty easy to figure out where your money is coming from, it is a bit harder to track where it is all going.
The number one area of untracked expenses for most people, he told For Your Benefit’s hosts Bob Leins and John Elliott, are restaurants and entertainment. “That’s the big shocker,” he said.
“Number two to me,” he added, “is that sometimes we see people who have an income of $80,000 and live a $100,000-a-year lifestyle.”
“Managing money is the easiest thing I do,” Onder said, adding, “Helping clients with their emotions is 80 percent of my job.”
Onder said he often tries to persuade clients to reverse their thinking about how they spend their money.
“Let’s get the necessities done, let’s get the retirement done and then, at the end of the day, if you have $1200 to spend any way you want to, as long as you don’t go into debt further than that, we’re okay,” he said.
As for planning for retirement, Onder said that finding the right mix of stocks and bonds in your portfolio is more than a matter of how old you are.
Conventional wisdom has it that young people’s portfolios should consist of about 80 percent stocks and 20 percent bonds – and that the balance should shift toward bonds as you near retirement.
However, Onder said it’s not so much about your age as it is about creating time frames: “If we need the money in the next two or three years we have no business in the stock market. If it’s 20 to 30 years, a strong majority should be in the stock market.”
According to statistics cited by Onder, investments pegged to the Thrift Savings Plan’s C fund or the S&P 500 have a 90-percent chance of appreciating over the next five years. That number declines to 74 percent for any given one-year period.
On other hand, such an investment in the stock market has a 100-percent chance of appreciating over a term of 15 years or more.
But, as people near the point at which they wish to dip into their TSP, Onder recommended shifting the balance toward bonds. “The most conservative portfolio that we can create, outside of the G fund, is a 75-percent bond, 25-percent stock portfolio,” he said.