Three Circle Financial Plan

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May 24, 2019
Three Circle Financial Plan

Image Copyright Ted Grussing Photography – Used with permission

Last week we talked about budgeting for beginners.  Once budgeting is underway, it’s time to think about saving and investing in your future.  Let’s take a look this week at a simple 3-step financial plan that you can set up yourself.

The first step is to plan for a short-term period, like the next 1-5 years.  This is the time where you will be saving for short-term financial goals and providing for an emergency fund.  This is money you will need readily accessible.

  • The downside in this stage is that your money may grow very little, but it will start savings while at the same time leave money on hand for life’s unexpected surprises.
  • Examples might be CDs and Money Markets.

The second step is to plan for intermediate-term goals.  In this period, money needs at least five years to grow so it can be invested in the market.  Goals during this stage go out 5-10 years.  These goals can be children’s college education or a second home.

  • These funds, when allocated properly, can gain a 6-10% return.
  • Examples might be a 529 College Savings Plan or an individual investment account.

The third step is the long-term goal – your retirement!

  • This money, when allocated properly, can gain a 6-10% return, as well.
  • Typically these funds go into tax-deferred accounts like 401Ks and IRAs.
  • This is your best money because it is pre-taxed and will grow tax-deferred until taken out.
  • Another option is a Roth IRA, which is also tax-deferred, but deposits are AFTER tax and, when eligible, never taxed again, even when distributed.

Living a long, full life while becoming financially independent can be achieved with proper planning, goals and discipline.  Carry on . . . and ENJOY!