Be it the affluent pre-retiree, small business owner, corporate executive, or recent college grad, all investors have different needs. To help address those varied and unique needs, over the coming months, Let’s discuss some relevant solutions for supporting long-term financial strategies amidst today's economic environment.
Here are 10 keys to consider when planning your financial future:
1. Start with a budget
Start by listing every category of expense, including housing, utilities, groceries, transportation, medical, clothing, insurance (life, car, home) and any other categories that may apply to you.
Also create a category for savings, so that you are putting away funds every month for your future dreams and goals. A budget will help you track the money you spend and prioritize your expenses.
2. Manage debt wisely
Long-term planning, much like what we do for individuals with established wealth, is an imperative mindset to adopt at a young age. A credit card is a convenient tool in a modern economy, but do not look at it as an unending supply of cash. A prudent strategy is getting a debit card tied to a savings account so that you can never spend more than what you have.
3. Be conscious of your credit rating and score
As you enter the workforce, credit rating companies are keeping track of your credit and payment history. Missed payments can have negative impacts on your ability to secure future credit for the larger expenses in life -- like a home purchase, an automobile or financing a wedding. If you establish good financial management habits early on, you will be more apt to understand the value of making your wealth grow when you have the opportunity.
4. Protect your future with insurance
Secure coverage for your home, automobile and any valuables. Consider signing up for group disability coverage that is offered by most employers.You never know what circumstances life may bring and this will protect you in the event of injury or disability. As your wealth grows, this type of policy can become ever more important as you have more assets that can transfer.
5. Save for the long term
Take advantage of pre-tax plans such as a 401(k) or 403(b) offered by most employers.Set aside a percentage of your pay cheque into these retirement plans.Since all contributions are pre-tax, you cut down your income tax liability and enjoy potential tax-deferred growth until retirement. Many employers also match, to some degree, the contributions you make.
6. Be sensible about risk
As you begin your investing, avoid frequent trading or speculation. Consider utilizing diversified vehicles such as mutual funds, taking a modest approach to grow your wealth. Take a long-term view of investing by adopting an appropriate asset allocation mix. Do not be tempted by short-term trading or market timing.
7. Remember the rule of 72
The rule of 72 is a simple formula to determine the length of time required to double your money. For example, if you were to invest your money at a rate of 8 per cent a year, using the rule of 72, 72 divided by 8 equates that it will require nine years for your investment to be worth double the amount of your original fund.
8. Create a basic will/trust
You may need a basic will and/or trust to help ensure that your assets pass on to your beneficiaries in the event of an untimely death. A trust can be used to transfer property to your beneficiaries. A will requires that you take an inventory of your assets, which may include your investment portfolio, your first house, your retirement plan and funds from your insurance plan.
9. Build equity, not just income
Income does not equal wealth. Only after years of consistent savings and intelligent investing does income grow into wealth. Many companies today offer stock options or stock purchase plans. This is often an excellent way, once you are secure with your job, to become a shareholder in your firm and build equity capital for the long term.
10. Develop your personal business plan for success
Consider yourself to be not just an employee, but the president of your own self-services corporation. In this business plan, list your short and long-term goals for career growth, income, wealth and other metrics.
As the saying goes, 'People do not plan to fail; they fail to plan.’
Source: ET
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