Life is short. With so many things to do and places to see in the world and such little time to get it all in, it can be a real downer when your financial situation isn’t one that will allow you to achieve those items on your bucket list. To even get to a place where checking items off a bucket list is possible, it is important to develop a financially sound lifestyle.
But what does it mean to have your financials in order? After all, with the average life expectancy well into the seventies and retirement likely many years away, don’t we have plenty of time to save? The answer is, not really. Most financial advisors will tell you that those best prepared for retirement are the people who start planning in their twenties or thirties. That can be an intimidating thought, especially if you haven’t started saving yet.
How to get your financials in order
Regardless of your age, if you are employed and earning money, then you need to have a financial plan. Getting your finances in order early and staying on top of your savings can make a critical difference in the quality of life that you will experience during your retirement or in the event an emergency takes place.
Consider these critical pointers to help you get your finances squared away.
1. Meet with a financial advisor
Developing a relationship with a financial advisor can be extremely beneficial. Financial advisors can provide you with the guidance necessary to help you create a holistic view of your financial situation. Not only can they help you determine how much you should save, but they can also help you put together a budget for spending. This holistic approach can put you on the right path forward to ensure you can live comfortably now, as well as in the future. Financial discussions are often a taboo discussion with family members or friends, but with a financial advisor, you can have the freedom to chat comfortably and openly about your personal situation. Your financial advisor can serve as an accountability partner that can advise you on what goals to set. And, they can help you with regular check-ins to ensure that you are on track.
2. Understand your credit report and stay on top of your credit score
Your credit score plays a vital role in your ability to purchase a home, a car, or to help your child with a student loan. The Fair Credit Reporting Act now requires that each of the credit bureaus provide access to credit reports once per year. Most credit scores fall between 600 to 750, though a good score is generally one that is 720 or higher. If your credit score falls below 720, you must take the steps to improve it so that you can get the best access to low-interest rates and financing options, should you need it. Those with good scores tend to pay their bills on time, minimize the use of available credit, maintain low balances, only apply for credit when necessary, and select their credit cards carefully. And, the longer you have established credit, the better it is for your credit score.
3. Create a retirement contribution plan and stick to it
Once you have established how much to put aside for retirement with each paycheck, be sure that you stay the course. Do whatever you can to continue to contribute consistently or increase your contribution as your income grows. Direct paycheck contributions to an employer-sponsored plan can be the easiest to maintain. Over time, you won’t even realize that the money is missing from your spending account. And, it will be growing in that retirement account.
4. Determine how much life insurance you need
Life insurance policies come in a variety of formats. Whole life insurance policies are those that you contribute to for your entire life (until the contribution period ends, usually around your retirement age or sometime shortly after) and provide a target amount that can be used for death expenses or retirement purposes. Term life insurance is designed to cover a specific time. If you die during the term policy, your beneficiaries get the payout. In most cases, your financial advisor will advise you to have a blend of plans.
5. Create a college savings plan for your children
If you have children, start putting money aside for their college plans right after they are born. Many of today’s plans allow you to have money directed right from your paycheck into the plan. And, if that isn’t for you, you can make minimum payments directly each month, and can add more at times where you feel comfortable in doing so.
6. Live within your means
This is critical and an area where it is so difficult for things to get out of control. With advertisements proliferating our devices showing us the latest and greatest item to buy or the next amazing vacation, it can be easy to get tempted and get in over your head.
Creating financial responsibility early in life is critical
Financial decisions, especially those that are long-lasting and will affect your family’s day to day life, can feel very overwhelming. As per financial experts at the same time, making sound financial decisions can also be empowering as you know that you are creating security for you and your family. In reality, you don’t need to be an expert to manage your finances. By taking the right steps now and developing a trusted relationship with a financial advisor, you will be able to make decisions that will be in the best interest of you and your family and you will feel good about making them.
Finally, if you are in a long-term committed relationship or marriage, you must take the time to discuss individual financial goals and beliefs about money management. Talking about those goals together, and openly, can help you to reconcile any key differences before they get out of hand. The earlier you align on goals, the easier it will be for you to meet them long-term.