You need to have financial goals or plans, as they will be your guidelines for what you are working towards—otherwise you may just be engaging in aimless efforts. Some of the financial goals include setting up an emergency fund, paying off your debt, contributing to your retirement fund, saving for your kids’ college education, and so on. However, with all these competing financial goals, it can be overwhelming to decide what to give your attention to first. The idea is to prioritize the goals that will ensure you can carry on with life fairly comfortably should anything happen to you, like losing a job or becoming incapacitated, or to your business, for example suffering a major loss.
Every person has a different situation, but here are some general guidelines that can help to prioritize your financial plans:
Start setting up your emergency fund
How would you and your dependents survive if you lost your livelihood? Well, the best way to ensure life goes on fairly well in case you lose your source of income is to have an emergency fund. As much as paying off debt and investing for the future is important, they may not help you so much when times are hard and you need to keep living in a bearable manner. An emergency fund can come in handy in case of any setback. To get started, begin right away to save with the goal of setting aside a reasonable amount, say $1000, to take care of some small emergencies, like house repairs. You will increase the amount later on.
Plan for your retirement
Thanks to inflation, the value of the money that you have today will be worth less when you retire, thus the need to accumulate a substantial amount now. Most people may not be able to rely on social security or pension once they retire. You need to start contributing to a retirement fund, preferably one in which your employer will match your contribution.
Get the appropriate insurance
You need to take care of big emergencies that can cripple you. Get life insurance if you have kids or people who depend on you. A term life insurance policy is appropriate if you have no kids but wish to provide death benefits to your loved ones. It is worthwhile since it is affordable and will protect your loved ones from financial sufferings if you die within the term of the policy. Also, consider disability insurance, as there are higher chances of becoming disabled than of dying prematurely.
Pay off high-interest debt
Having tackled your biggest risks and taken advantage of retirement funds, with your employer matching your contribution, the next task is to take care of your debt. Prioritize paying credit card debt and other forms of debt with an interest above 8% or any percentage that you think is high. A rule of thumb could be to prioritize paying off debt that has a 4-6% interest rate before putting aside more than your employer’s match; however, with credit card balances attracting about 19% interest, they should be highly prioritized, as no investment beats paying this off. The essence of paying off high interest rates is to first avoid damaging your score in case you pay late or default. With a poor score, getting credit and other benefits will be difficult. However, if your score is in a mess, engage experts at https://www.boostcredit101.com to help you rebuild it.
Get back to your retirement and emergency fund
You can return to building your future, having sorted out high-interest loans and prepared for big emergencies. Add to your small emergency fund to have enough to cover about 3 to 6 months of monthly living expenses. This will enable you to tackle bigger unforeseen events, like job loss. Concerning your retirement fund, have a goal of saving at least 10% of your gross pay, which should include your employer’s matched contribution.
Clear other debt
As you build your retirement and emergency fund, start paying off other loans (low-interest/long-term ones) such as mortgage, auto loans, and student loans. There is no specific guide on how much you should allocate, but it is for you to decide what you deem more crucial—eliminating all debt or saving for your retirement and building an emergency fund.
Other financial goals
You can now look into your future having made some good progress on the most basic savings. Start working out how you can save for your kids’ college education if you have children or plan to have some. Choose the best plans available, such as those with tax-free withdrawals. You can also consider saving for investments, upgrading your car or home, and more.