Q If I had to choose one place to begin my financial planning, where should that be?
Kyle H., Minneapolis
Goal-setting. As with most things in life, you are much more likely to achieve your desired result if you have a clear picture of what that is. Spend some time determining exactly what you would like to achieve and write it down.
It can be as simple as saving $100 of each paycheck into your 401(k) or giving 1 percent of your income to charity. However, make sure your goals are specific and controllable. Setting a goal to earn 10 percent on your investments is not a good goal because you cannot predict the market. Wanting to buy a house in two years is not a good goal. A better goal would be to save $10,000 for a down payment.
Regardless of what you decide you'd like to accomplish, write these things down and keep them in a place where you will see them often. There is strange power associated with written words that makes people want to believe and follow them.
Good financial decisionmaking is based on understanding what you want to achieve. Good financial planners go to great lengths to understand exactly what it is you wish to accomplish. The most elaborate financial plan in the world is worthless if it does not align with your goals.
Joe Pitzl (24)
Q I'm thinking about buying a house and would like to understand the true cost of homeownership.
Kevin M., Cottage Grove
It's more than just your mortgage payment. Insurance, maintenance and repairs and real estate taxes are also part of the equation.
A general rule is that you should annually budget about 1 percent of the purchase price for repair and maintenance. But if you buy a townhome rather than a house, you will have monthly association dues to cover some of these costs.
The first year after buying a home, you might feel like you are hemorrhaging money. Many people want to buy new furniture or redecorate. As you can imagine, you can spend as much or as little as you are able for these items.
The joys of owning a home also come with nonfinancial costs. Your time is valuable and some of it will be used for maintenance, yardwork and snow shoveling.
Owning a home also can be a joy. Take comfort in knowing you are building equity. You will be paying down principal on your mortgage and hopefully the property will appreciate. And if you itemize your deductions, the government is subsidizing your interest payments.
Kristin Hannemann, CFP (30)
Ka-Ching's financial experts at Edina-based Accredited Investors Inc. can be reached at email@example.com.