Today’s guest post is by Barney Whistance.
Planning a solid financial present is centered around four basic stages of financial management; creating an emergency fund, paying off debts, saving for larger long term goals, and investing in your financial future. Any sound financial plan also includes planning, foresight, and budgeting to get in the clear.
Here is a breakdown of the four stages of financial management that will get you on track to reach all your personal financial goals and dreams.
Build an emergency fund
Your first step to eliminating money headaches will be saving enough for an emergency fund. This will give you and your family peace of mind to handle much of what life may throw at you in the coming years. This initial savings goal should include enough money to get through at least three months of living expenses in the event that you get laid off or have some other type of emergency, like a car or water heater breakdown. Even if you can’t get this saved straight away, keep it as a target to aim for. Also, make sure that the money is in an easy to access account. In an emergency you will need instant access to these funds. If you have not done so yet, create a workable monthly budget, with a line item for saving. Tuck away as much as you can each month to stock up your emergency fund as quickly as possible.
Pay off debts
Debts are liabilities. They throw your finance in the red and set you up to pay more than the actual amount of the loan in interest payments over time. The second step, then, in creating a workable long-term financial plan, is to eliminate consumer debts completely. Throw all of your resources at your debts and you will be saving a large chunk of money in interest over time that you can then apply towards other parts of your plan.
When it comes it debts it makes sense to tackle the ones with the highest interest rates first. This usually starts with any retail credit cards you may have, and then goes on from there. Just make sure that you don’t neglect the minimum payments on your other loans and debts while you pay down the first. Any budget you have should include at least the minimum monthly required payments on all of your loan agreements. Bank credit cards, student debts, and other personal loans should also be on this list.
If you’re facing heaps of student debt in addition to credit card and personal loans, examine your loan types and current occupation to determine if you qualify for federal loan forgiveness or other types of loan reductions due to your career of choice. Government employees, teachers, those working in the non-profit sector, and certain healthcare workers – like those working in critically identified facilities, community clinics, and hospice care support settings – can qualify for loan reductions or even forgiveness after a period of two to ten years.
Currently, only about one percent of the 33 million people employed in the non-profit and government sectors are benefiting from the Public Service Loan Forgiveness (PSLF) program. Check into the Federal PSLF and the Health Resources and Services Administration (HRSA) Health Professional Shortage Areas (HPSA) debt reduction programs to see if you qualify.
Build up your savings
Once you’ve built up your emergency fund, and paid off your consumer debt, you can concentrate on funding additional extras and loftier goals. These immediate savings goals might include:
Having enough money to go on a vacation and not have to worry about bills.
Saving up some extra cash to have on hand so you don’t have to worry about finances during maternity or paternity leave.
Putting together a down payment on a house or other property.
Buying a car with cash instead of taking out a loan.
The last stage of the journey is to ensure that you are putting money aside each month for important long-term goals like your children’s college education, pension plans, retirement savings accounts, and other long-term investments.
Consider diversifying your investments into physical properties. You don’t have to have a ton of money to break into the property market. With the explosion of crowd-sourced real-estate funding, like Fundrise, CrowdProperty, and Exceedant, just to name a few, you can now invest in part of a property or development project with as little as $20 and earn as much as 12 percent annual return. Diversifying into property investment early on is a great way to maximize your earnings over time.
Barney Whistance is an enthusiastic Finance and Economics blogger who is most interested in global economic climate. Apart from doing majors in Finance, he is also a Chartered Accountancy Student and planning to complete his Ph.D. in Finance before he turns 30. You find him here on Twitter.