We work two thousand hours each year, hoping to become financially secure and offer our loved ones (and ourselves) a sense of comfort and stability. But in order to achieve that goal, we must have a financial plan. We also have to be intentional as we build wealth and take steps toward protecting our assets and investments.
Set financial goals
Financial goals like becoming debt-free, travelling the world and owning a home resonate with many people. And everybody wants to be able to retire early. No one wants to be forced to continue working well into their 70s and 80s.
Think about your short- and long-term financial goals.The deeper you can go with understanding those questions, the more motivated you will be to achieve your personal financial goals.
Review your budget
The word “budget” doesn’t give most of us warm and fuzzy feelings. But by comparing your monthly expenditures to the amount of money you’re bringing home, you can take control of your financial future and improve your financial well-being.
Grab a recent bank statement and write down each of your monthly expenses. Some expenses are fixed or unchanging each month, like insurance premiums and mortgage payments. Others are discretionary expenses, like money you spend at the movies or during trips to the coffee shop.
Hopefully the sum of your expenses does not exceed your monthly net income. By understanding how much you’re spending relative to your take-home pay, you’ll be able to set realistic financial goals. Since you probably won’t be able to work toward all of your goals at the same time, you’ll need to prioritize. For example, paying off debt may be something you want to tackle first.
Kill your debt
There are many strategies that you could use to pay off debt. You could choose to pay down the most expensive debt first. Or you could pay off the smallest balances before moving on to your other outstanding debts.
Debt consolidation is another option. It involves using a new loan to cover multiple debts. This strategy can potentially offer several benefits, including a lower interest rate. You’ll also have fewer creditors to pay. But there are risks to consider when you’re consolidating debt, like ending up with a loan with a longer term that costs you more interest. If you’re considering that strategy, you may need to get help from a financial advisor.
If you have student loan debt, you may be able to take advantage of income-based repayment programs such as PAYE or REPAYE. And of course, avoid taking on new debt if possible, so that you can begin to boost your net worth.
Save for retirement
If your employer offers a 401(k) program, you should participate — especially if they offer to match your contributions. The other advantage of having an employer-sponsored retirement plan is the fact that your savings are automatically deposited into your account. You don’t have to take any action to make contributions. And if you are at least 50 years old, you may be able to make catch-up contributions.
If you are self-employed, or you don’t have an employer-based retirement plan, you can set up a Roth or traditional IRA account within minutes. And of course, there are stocks, bonds and annuities that you can invest in.
In order to avoid compromising your long-term financial well-being, keep in mind that retirement savings should not be viewed as a safety net that you can access when times get tough. Early distribution penalties can be steep, and if you tap into your savings now, their ability to grow over time will be diminished. If you find yourself in a serious situation and you’re considering an early withdrawal from your retirement account, consult a financial expert to see if there are other ways to get the money you need without cracking your nest egg.
Protect your assets
Insurance can protect your assets and your loved ones in the event of an accident or natural disaster. Here are two things to think about when evaluating your insurance coverage.
1. Do you have enough insurance coverage?
Signing up for home insurance is an important step to take. But you’ll need to make sure that your coverage is sufficient. For example, if you bought your home three years ago and you recently remodeled the kitchen or added a pool, you may need to increase your coverage so that your policy takes the changes you’ve made into consideration. On the other hand, if you have an older roof, weathered fencing materials or other aspects of your home that show wear and tear, your insurer may perceive that there’s additional risk. This can cause an insurance carrier to increase your premiums and in extreme cases, the company may not renew your policy at all if certain issues are not fixed.
2. Do you have the right type of insurance?
You’ll know what kind of insurance you need based on your life’s circumstances. If you have a spouse and children, for example, you will want to purchase life insurance. And as you build wealth, you may want to purchase an umbrella policy, which provides liability protection beyond the coverage limits offered by an insurance plan. Contact your insurance provider and ask for an evaluation of your existing insurance coverage. Consider whether there’s another carrier, like Hippo, that’s more prepared to meet your needs.
Another way to protect your assets is to consider ways to reduce your tax liability, especially since the tax reform bill that was signed in December will take effect for tax year 2018. Speaking with a tax professional will give you the opportunity to find out whether a trust or another estate planning strategy might be right for you. That way, you can potentially shield your estate and beneficiaries from significant tax burdens if you pass away.
Have questions about how you can protect your financial future with insurance coverage? Speak with a Hippo specialist.