Creating a sense of financial security can be a delicate balancing act. Many
Attack Your Debt
If you find yourself laden with consumer debt, the best plan is to address the debt first, otherwise, any savings plan will be sabotaged by minimum payments and interest. Set aside a small emergency fund before you begin—$500 or $1,000 to get you started. This small fund will help keep you from going into more debt should an emergency arise along the way. Once your emergency fund is in place, create a budget with an aggressive plan to pay off all consumer debt except for your mortgage. Once free from the chains of debt, you will find it much easier to reach your savings goal.
Hard Core Emergency Fund
Once your debt is under control, you can create a real emergency fund. This should be a separate account from your normal day to day checking account, and you should have some guidelines surrounding when to pull cash from this account. This account is for emergencies. A dining room on sale does not count. Experts recommend 3 – 6 months savings on hand in an emergency fund. This will help you in the event that you you’re your job, or have unexpected medical bills. Calculate your net monthly pay and multiply by three, and then by six, and this will give you a target range.
Saving for a Purpose
Many consumers desire homeownership. In order to purchase a home, a healthy down payment is required. Talk with your bank about lending requirements, and then develop a savings goal based on those requirements. Calculate the amount of savings that you will need to put aside from each check, and how long it will take you to reach that goal. Once your goal is defined, stick to it. Many people find that writing a goal down, or telling others about it will help them stay on track.
Saving for College
If you have children, you will want to consider the cost of post-secondary education. Talk with a financial advisor about college savings plans that will help you achieve this goal. Review pre-paid plans as well as plans that come with tax benefits. Ask lots of questions, and make sure you feel comfortable enough with your financial advisor to set a realistic and attainable goal.
Retire With Dignity
Don’t wait until your 60th birthday to start your retirement planning. Start while you are young, and time is on your side. The longer you have until retirement, the longer you have to let compound interest work in your favor. Your goal should be to save at least 10% of your income in a pre-tax or after-tax retirement account. If you are new to retirement savings, start off small, with perhaps a 5% goal, and slowly increase your percentage each year. Easing towards 10% will help you manage your budget without having to make drastic changes in lifestyle.
This article was contributed by Richard Craft, an MBA student who looks forward to sharing more and more of what he knows with the world. As a father of two kids, he understands the importance of proper financial management.