Building financial stability is all about finding that balance between planning for the future and living a comfortable lifestyle today.
For many, financial stability can feel like an unattainable dream. However, it’s possible for anyone to become financially stable with the right plan in place. Knowing that your money is safe and that you are prepared for whatever life sends your way is an important part of being financially responsible, therefore determining your actual level of financial stability is a great first step.
Are You Financially Stable?
To start any kind of future planning, you need to figure out where you are today and where you want to get to. This is also known as “financial literacy” or “financial health”. This 8-question financial well-being assessment from Nerdwallet is a great starting point. Your score will reveal whether you are financially vulnerable, financially coping or financially healthy. The latter being the goal. To remain stable wherever you are on your financial journey, you need to focus on your short- and long-term goals.
Understanding the relationship between your short- and long-term goals can help you determine priorities. Adopt these short-term habits today to help set yourself for a solid financial future.
- Make a Budget
The key to any type of financial success is creating and maintaining a budget. It is essentially a running account of what you are making, spending, and keeping over time ― and it is one good way to help establish healthy personal finance and wealth management. If you’ve never lived on a budget before, it is helpful to have someone walk you through the experience like a knowledgeable wealth management advisor. You can fire up an Excel or Google Docs spreadsheet to help you create a budget and track your progress. Once you have a budget established you can start making your finances behave with the future in mind.
- Build an Emergency Fund
According to a Bankrate survey, nearly 4 in 10 Americans (41%) would borrow money to cover a $1,000 emergency. Setting up a dedicated savings or emergency fund is one essential way to help protect yourself, and it’s one of the first steps you can take to start saving. By putting money aside—even a small amount—for these unplanned expenses (think medical emergencies, house/car repairs, loss of income), you’re able to recover more quickly and get back on track towards reaching your larger savings goals.
- Clear Debt
Paying off a student loan or battling credit card debt can be tough. But without acknowledging and having a plan to deal with debt’s impact on your financial circumstances, it can spiral out of control. That’s why a debt management plan should be part of your financial wellness plan.
- Save for Retirement
Even if you have decades to go until retirement, the time to get started saving was yesterday. The longer you wait to start saving for retirement, the more you will need down the line. Putting a little money away each month in a retirement account will help reduce the amount of money you pay for taxes now and add up over time for a more secure future. How much depends on your individual needs, so speaking with your retirement income advisor is a great first step in helping to detemine your saving strategy.
Long Term Goals
Long-term goals are usually your big-picture wealth plans. These goals may take several years or even decades to reach. Your distant goals typically involve more money and regular attention than short-term goals.
- Building Your Retirement Fund
Although also listed in the short-term goals, the biggest long-term financial goal for most people is saving enough money to retire. Taking care of your golden years by planning for retirement early and taking advantage of retirement savings plans are important contributors of financial wellness. That means looking at employer-offered retirement savings vehicles, like 401(k) plans, and other mechanisms to build your retirement savings.
The goal of investing is to allow your money to grow over time. There are principles and strategies that may enable you to put together an investment portfolio that reflects your risk tolerance, time horizon, and goals. Understanding these principles and strategies can help you avoid some of the pitfalls that snare some investors. Effective investing requires an ongoing effort. Seeking advice from an investment advisor could help guide your approach to the financial markets and make your investment efforts much more effective.
- Lifestyle Management
Managing your lifestyle is all about making smart choices. Each lifestyle decision you make, from your choice of a home, to what you drive, to how you spend your leisure time, has an impact on your overall financial situation. Smart lifestyle strategies can enhance your lifestyle while at the same time potentially freeing up assets to invest for the long term.
- Estate Planning
Your financial wellness doesn’t stop with you. Once you are gone, your family is left to deal with how well you managed your money – or not! Effective estate management helps enable you to manage your affairs during your lifetime and better control the distribution of your wealth after death. An effective estate strategy can spell out your healthcare wishes and help ensure that they’re carried out – even if you are unable to communicate. It’s just as important to designate someone to manage your financial affairs should you be unable to do so.
Finding financial stability doesn’t happen overnight. And that’s the beauty of financial planning: You can review and update your goals and monitor your progress in reaching them throughout life’s ups and downs. In the process, you could find that both the short-term and long-term strategies help you achieve your financial goals.
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