How to Feel More Secure About Your Financial Future
To say the least, 2020 has shaken our sense of security. Our health, livelihood and our way of life have been threatened with no immediate relief in sight. How we feel about our finances has been hit hard with a volatile stock market and the uncertainty of the impact of what the upcoming election will have on our investments. What can we do? We can go back to the basics and create a solid financial plan.
1. Create Your Budget
The foundation of any financial plan is knowing how much you earn and spend. This can be done by using a budgeting app on your phone or automating the process with a service like Mint. At the end of three months, calculate your average monthly spending for various categories. If you’ve never done this before, I bet the results will surprise you.
2. Set Financial Goals
Now that you have a clearer picture of where you are now, it’s time to define where you want to be in the future. When would you like to retire? What quality of life do you want? How much will you need to afford this quality of life? Don’t forget to include all your short-term and long-term goals.
3. Beef Up Your Emergency Fund
Do you have cash readily available for emergencies? While the size of your fund will depend on your situation, the general rule of thumb is to have enough to cover 6 to 12 months of essential expenses.
4. Design A Savings Road Map
Assuming an average return on your investments, how much do you need to put away each month to reach your goals on time? Does your budget allow for this? If not, what steps can you take to either reduce your monthly spending or increase your monthly income?
5. Be A Smart Investor
Start by determining your ideal portfolio allocation of equities and bonds based on your time horizon, goals and risk tolerance. As time goes on and markets shift, rebalance your portfolio so it stays aligned with your ideal allocation. Saving for retirement is a long-term investment where allocation may shift over time. When you are in your 30s, your portfolio may have more risk to accomplish more growth, but as you get closer to retirement, your risk level should decrease to protect your principal.
6. Get Started On Your Estate Plan
Many people believe it’s too costly to get these documents in place, or that they don’t have enough money to worry about estate planning. But the truth is, everyone needs an estate plan.
7. Do you have a plan to manage risk?
Make sure you do your part to take care of the avoidable risks by getting the proper insurance coverage. Not only should you evaluate your need for and coverage of your homeowners, auto, and health insurance, but you might also consider a long term care and an umbrella policy.
