No matter where you are in your life, it’s never too late to start setting financial goals for yourself.
Setting financial goals helps you stay on track, whether unexpected expenses and gain peace of mind for your later years. In this article, we will review seven goals that can help you get on track – and stay there – for the duration of your financial future.
Live Within Your Means
We all know that we should live within our means, but it can be easier said than done. This is especially true when wages are stagnant, yet prices for everything from food, to housing, to cars continue to rise. Long gone are the days when one middle-class income at a single job could support an entire family. In fact, 78 percent of American workers live paycheck to paycheck; of those, three in four are in debt, and one in four have no savings. Walking that close to the financial edge means one unexpected expense – something as common as a broken down vehicle – could become a personal financial crisis.
So, how do you live within your means and avoid these potential crises? Most importantly, you need to know exactly how much money you’ll have, after taxes, to pay for your lifestyle. Once you know that crucial number, you should review all your expenses and come up with a realistic budget that you can stick to. You may be surprised at just how much money you’re wasting on things like eating out, gym memberships, cable, and online monthly subscriptions.
Your ultimate goal, of course, is to spend less than what you earn. This isn’t always easy, though, and it may require important changes in your spending habits. For instance, you may need to begin saving up for that dream vacation rather than putting it on credit cards, buying an older model car or living in a modest home. To make peace with your new spending values, try to avoid competitiveness and comparison with your friends and family. Instead, focus on your long-term goal of financial security. In the end, this will provide you with much greater value than keeping up with the Joneses ever will.
Maintain Good Credit
A strong credit score is integral to your financial health. Unfortunately, 30 percent of Americans have a credit score under 600, which is considered fair or poor. Good credit gets you better rates on mortgages, credit cards, interest rates and lines of credit. To build and maintain strong credit, you need to be disciplined: don’t carry large balances on your credit cards, pay your bills on time and don’t open more credit accounts than you need.
A useful tip for avoiding late payments, which can be particularly damaging to your credit score, is to set your bills to autopay to ensure they are paid automatically every month. You should also make it your goal to pay your credits cards off in full every month. If you aren’t able to do that just yet, work toward always paying more than the minimum monthly payment. It’s also a good idea to keep old credit accounts open even if you aren’t using them, as the longevity of your credit history is important in building a strong credit score, too. Finally, make sure to add new credit accounts conservatively.
Set a goal to get up to credit score of 700 before applying for a major loan. Monitor your credit score by getting a free copy of your credit report every 12 months from each credit reporting company from www.annualcreditreport.com. You can also open an account at www.creditkarma.com for free to get alerted when there’s an important change on your reports.
Build an Emergency Fund
Having an emergency fund is an important step when it comes to your overall financial health. Before paying off any major debts, you should work toward establishing an emergency savings fund. This fund is your cushion for unforeseen expenses like a health issue, a needed big-ticket item or other unforeseen emergency. To start, set your sights on saving the equivalent of three to six months of your living expenses in a high-yield savings account (such as www.ally.com) earmarked for emergencies only. Once you have a nice cushion of emergency funds, you can begin paying off consumer debts.
Ideally, you want to be saving for retirement in secure accounts, such as a 401(k) or Roth IRA, at the same time as building your emergency fund. However, if you’re only able to do one at a time, build your emergency fund first.
Pay Down Debt
Did you know the average American has $38,000 of personal debt (excluding mortgages)? On top of that, the US has racked up over $1 trillion dollars in credit card debt. These statistics are concerning, to say the least.
If you’re working toward healthier finances overall, paying off debt is an important goal. There are many ways to approach paying off debt, so do some research and choose the path that’s right for you. Helpful steps may be to consolidate debts, always pay more than the minimum required payment and pay off your most expensive or highest interest debt first. It takes discipline to pay down debts, but keep your long-term goals in mind: wouldn’t it be nice to retire debt-free?
Maximize Your 401(k) Contributions
Taking advantage of employer-match 401(k) contributions is one of the easiest and most beneficial ways to save for retirement. Approximately 75 percent of companies offering a 401(k) savings plan offer a matching program, but one in five participants do not invest fully, unlocking the employer match option. Not maxing out your contributions is, essentially, like leaving free money on the table.
If you find it difficult to save money for retirement, set up an auto-deposit into your 401(k) so that you’re investing in your retirement every paycheck without having to take proactive steps each month. If your employer’s match is 50 cents to a dollar for every dollar you contribute, up to 6% of your compensation, you must contribute at least 6% of your compensation to get the full matching amount. If you are able to save more, then consider making contributions to Roth IRA or IRA ($6,000 in 2020). Look into maxing out any and all retirement savings plans annually and start as soon as you can. If you are getting a later start, there are catch-up contributions ($6,500 in year 2020) if you are at least age 50 that allow you to contribute more than the standard 401(k) limits ($19,500 in 2020).
Plan for College Expenses
The best advice for preparing to send your children to college is to start early. Quite simply, more time allows you to set aside more money. If you use a 529 college savings plan, that money can be growing tax-free and secure until you need it. You can now use it to pay tuition for students attending private K-12 schools - up to $10,000 per year per student. Another benefit of the 529 is that it can be rolled to other children or even your children’s children if the money isn’t used.
Minnesota taxpayers now have the option of claiming either a tax credit or deduction for contributions to any state 529 plan. Maximum deduction is $3,000 for a married couple filing jointly or $1,500 for all other filers. This deduction is not subject to income limit. So don’t forget to claim this deduction on your state tax return to save a few hundred dollars in taxes.
529s still tend to be an underused tool, with only 3 percent of households taking advantage of them. With a little knowledge and foresight, however, these savings plans can negate the need for your children to take out costly student loans in order to afford college. Financial experts across the board agree, however, that it is better for a child to take on their own loans than for parents to dip into their retirement savings.
Create an Estate Plan
If you have any financial assets that you want to pass on to your loved ones when you die, you should have an estate plan including a will set up soon. Your will is a legal document that ensures that your money, property, and personal belongings will be distributed as you wish after your death. The law doesn’t require that you have a will, but if you die without one, your resident state will divide your property based on state laws. If you have a spouse and children, the property will go to them by a set formula; if not, the property will descend in the following order: grandchildren, parents, brothers and sisters, or more distant relatives. If you want to leave a property to a friend or a charity, you will definitely need a will. You also need a will if you want to prevent someone from inheriting some of your money.
In addition, as you work with an estate attorney to draft your will, this attorney can help you draft power of attorney form and health care directive that you can name the right people to make financial and medical decisions on your behalf if you become unable to do so yourself. Writing up an end-of-life letter of intent to detail your wishes for end-of-life care and funeral arrangements can also bring peace of mind to you and your family.
You can read this article to learn more about estate planning: http://www.echowealthmanagement.com/blog/don-t-put-it-off-a-user-friendly-guide-to-organizing-your-estate-plan
Maintaining a focus on financial goals can sometimes be difficult, but staying on track to hit the above goals will lead to long-term financial health and peace of mind for you and your family.