You don’t need a special background or degree to become a financial planning and money-management expert. With these strategic financial planning tips, you can be as prosperous as someone with a hard-earned MBA in finance. Financial success means different things to different people. For some, it could mean freedom from debt.
For most people, financial success means being in notably better financial shape now than you were a year ago. Depending on what your individual goals are, you can measure your financial situation as well as your progress. Being financially successful can help you get more peace of mind, free time, physical comfort and security. Here are five must-haves for financial success.
An Emergency Fund
A successful financial strategy involves putting aside an emergency fund. Essentially, an emergency fund is composed of money you set aside to cover unexpected events that life throws your way. This money lets you live for a few months, almost like an insurance policy. But instead of paying premiums, you are setting aside funds to pay yourself for an emergency situation.
An emergency fund is a strategic move that allows you to live for at least a few months if you lose your job or if something unexpected comes up that costs a large chunk of money. You can use your emergency fund during periods of medical emergencies, unemployment or paying for repairs to your home due to events like natural disasters. It can also be used for unforeseen vehicle repair or emergency veterinarian bills. Most financial experts and banks suggest that you save at least three months’ worth of your salary for an emergency fund.
According to financial planning experts, the fastest way to create an emergency fund is to set a plan and stick to it.
Open an account such as an eSavings account or a savings account that you cannot access with a debit card. You may also use an app, such as Digit, that automatically saves money from your checking account.
Having automatic transfers from your paycheck or your primary account into one of these savings accounts will help you build an emergency fund. And the best part is, you may not even feel it. Successfully creating a fund for emergencies is one of the most important keys to financial success in the long run.
People who have experienced unforeseen expenses can probably tell you how hard it was to find funds to cover the expenses they had to pay for, or how happy they were that they had emergency funding. To successfully weather the storms we face in life, pre-planning is a key factor. This is one of the best budgeting strategies recommended for financial success.
Your Own Retirement Account
Financial advice for young adults always includes saving into a retirement account. The primary goal of a successful retirement plan is to ensure you will have sufficient financial resources to improve or maintain your life during your years of retirement. If you want to make special purchases or travel during your retirement, you will need more savings than usual.
Determining exactly what you want to spend on your retirement will help you understand how much you need to save. For a retirement account, you will want to save enough so that your income in retirement is around 80 percent of your current pre-retirement income. If you have more expenses when you are retired than before retirement, the income will need to be more than what you make now.
Planning for retirement helps ensure that you have the funds to improve or at least maintain your living standards even during retirement. You can attain long term money goals by building a diversified portfolio and investing.
Saving around 80 percent of your pre-retirement income in retirement is recommended. Sources of income during retirement include qualified retirement plans such as 401(k)s and IRAs, savings and Social Security retirement benefits. Determine what your needs are going to be during retirement. Evaluate where things currently stand and determine if you will need additional savings.
Beginning investors often start with common stocks, as these can be easily bought and sold. Alternatively, you might prefer to buy a portfolio of stocks managed by a professional financial institution with a great track record.
You might even prefer investing in a stock portfolio you manage yourself. No matter what you decide to invest in, diversifying your investments will help you create various streams of income that can help you build a bigger savings account and ensure your financial security down the road.
If possible, you might also want to invest in real estate. Real estate is popular due to its high returns and special income tax benefits.
Wealth Protection Skills
The best ways to budget and save money won’t mean anything if you do not take steps to protect your wealth. Taking care of your hard-earned money will mean taking steps to make sure it does not vanish.
You should consider getting renter’s insurance if you rent or homeowner’s insurance if you are a homeowner. This type of insurance protects your home or apartment from events such as fire or burglary.
You can also protect your ability to earn money by getting disability income insurance. This type of insurance provides you with a steady income if injury or illness prevents your from being able to work for extended periods.
Protect your money from inflation by making sure all your money earns interest through mutual funds, bonds, stocks, CDs, money market funds and high-interest savings accounts.
Spending less than you earn is essential for financial success. It is crucial to understand your wants versus your needs. You may want to take a luxury car with chrome wheels, a GPS system and leather seats to work every day. However, all you might actually need is a reliable transportation method to take you from one point to another.
Use your money for things that are essential, and anything leftover needs to be saved for the future. After you have reached your goals, you can indulge in a bit more extravagance.
So there you have it: the five must-haves for financial success. Equip yourself with as much information as you can, and watch your savings grow as you hone your financial-building skills year after year. This way, all the money you save with your newfound skills will take care of you in the future.