A financial plan is the first step to building a strong foundation for your finances. Are you confident that you’re on track for the financial future you want, or does it feel like you’re guessing about what to do next? Maybe you have a clear picture of what you want to accomplish, but the details of how to make it happen are a little fuzzy. Creating a financial plan can help bring things into focus—it’s like a road map to help you figure out how to reach your financial goals.
Financial planning involves identifying the goals you want to achieve and making sure you have the “what-ifs” covered. This, in turn, can help guide you through key decisions in life and make you less vulnerable to setbacks and financial hardships down the line. You can feel more confident about financial decision-making when you have a plan to guide you. Your financial plan might cover a number of areas, from managing debt and saving for the future to building wealth and protecting your money. Consider the following topics as you map out your financial plan on your own or with help from a financial advisor.1
Emergency Savings
Building a strong financial foundation starts with saving for emergencies. When you have a safety net for unexpected expenses, you don’t have to worry about throwing your budget out of whack. You can be confident that you’re ready for a car breakdown, home repairs, medical expenses or other emergencies that pop up.
Make your plan: It’s OK to start small with an emergency fund—saving $50 in an account you’ve designated for emergencies is a good starting point. You might work up to saving $1,000 and then eventually aim to save enough to cover three to six months’ worth of living expenses in an emergency fund. Use our Emergency Savings Calculator to determine how much you may need to save.
Debt Repayment
Do you know how much debt you currently have (credit cards, student loans, auto loans, mortgage, etc.) and how long it will take to pay off each debt at your current rate of payment? It’s important to make a long-term plan for debt repayment so you can focus your efforts on the most efficient ways to reduce your debt. This might include tackling high-interest rate debts first or loan consolidation.
Make your plan: Create a running list of all your loan balances and interest rates so you can see where you stand today and identify ways to make a dent in your debt. For example, you might make extra payments on your loan with the highest interest rate. A financial advisor can help you review your debt and create a debt elimination plan. Use our Debt Roll-Down Calculator to find the best way to pay off your credit cards.
Retirement Planning
Spending time today to plan your path to retirement can provide you peace of mind in the future. Getting started is the most important step you can take—it’s never too early or too late to save for retirement! The key is to continue saving consistently and make retirement savings a priority in your budget. Individual retirement accounts (IRAs) and employer-sponsored retirement plans, such as 401(k)s, offer tax benefits that can help your savings grow faster. As you near retirement, you’ll want to set a strategy for tapping retirement assets.
Make your plan: If you have a 401(k) through work, contribute at least enough to take advantage of employer-matching funds (if offered). You may also want to consider opening an IRA to save money for retirement. Your financial plan should outline your retirement savings goals and ways to boost your savings (e.g., increasing your contributions every year or when you get a bonus or raise). Run the numbers using our Retirement Planner Calculator or review your retirement plans with a financial advisor.
College Savings
Parents and guardians face the challenge of balancing multiple financial demands, including your own retirement and future health care costs as well as education expenses for your dependents. Having a financial plan helps ensure you’re taking the right steps to address all areas of your financial life. Choosing the right college savings vehicle and planning ahead to take advantage of financial aid, loans and scholarships can help make college more affordable.
Make your plan: Determine how much you want to save for college and the best way to grow your savings. Our College Savings Calculator can help you estimate how much you’ll need to save.
Insurance Protection
Insurance is essential to protect your family and your financial future. Having health insurance, auto insurance and homeowners or renters insurance protects you when you need it. You may consider options for life and disability insurance, which can help protect your family’s finances if something happens to you.
Make your plan: Review your insurance coverage and beneficiaries, especially if you’ve had any major changes in your family and life. A total risk assessment with an insurance professional can make sure you have the right level of coverage.
Medical and Long-Term Care
You never know what the future may hold—but it helps to be prepared for anything. What if you or a loved one experienced major medical issues or needed assisted living or nursing home care? Making decisions about long-term care can be stressful and emotionally difficult, and the costs can drain your family’s finances.
Make your plan: You may want to explore options for long-term care insurance to help pay for long-term care needs such as nursing home care. You may also decide to write an advance care directive regarding your wishes for medical care and name a power of attorney to make financial decisions on your behalf if you’re unable to do so.
Take control of your future with a financial plan for the next five, ten or more years. Working with a financial advisor can help uncover more ways to save, invest and protect your money.
#REPOST By Navy Federal | June 23, 2020 |