Financial security is a subject we often hear about and you probably know that it is crucial for your future and the stability of your family. But most of us don’t learn the basics of how to set ourselves up to be financially secure in our retirement years unless we take a course or our parents show us the ropes.
Fortunately, the basics of financial security are fairly simple to learn. With a little discipline and planning, it is possible to prepare for financial freedom for years to come.
It sounds like common sense, but you should start saving and making smart financial decisions as soon as possible. If you can, set up a retirement account as soon as you start working and contribute the maximum amount possible to the account. That said, it’s never too late to start working towards a healthier financial future. Even if you’re mid-career or older, you can still do yourself a favor by making smart financial decisions now.
Tax-deferred accounts are special funds you can set up, usually through your employer, that save you money with fewer tax consequences. Two common types of tax-deferred accounts are 401(k)s and IRAs. Each of these accounts works differently, but it’s generally wise to maintain one of each to take advantage of their unique benefits.
Treat contributions to your savings account like you treat paying a bill: it’s a non-negotiable monthly expense. You can set up automatic direct deposits that go straight to your savings account so you never even see the money going to savings. With this mindset, you can think of the bill collector as your future self – and you’ll be glad you paid on time.
Reduce your expenses wherever you can to get the most out of your money and invest as much of your savings as possible. Take stock of where your money is going, create a budget and stick to it, and cut unnecessary expenses. Think of it as a form of delayed gratification. You may not be able to spend the money now, but if you save it properly, you will have more money to use later when you need it.
If you’re married, your financial health is tied to that of your spouse, so you need to make sure you’re on the same page when it comes to saving and spending. Money can be a touchy subject for many couples, so make sure you can have a respectful and calm conversation with your loved one about the present and future of your finances.
Learn the 4% rule
the 4% rule is a basic measure to help you understand how much you will take out of your accounts each year after retirement. Therefore, it provides an estimate of the amount you will need to save. In general, the rule states that retirees should withdraw about 4% from a retirement account per year. This rule was created using historical data on US stock and bond returns from 1926 to 1976.
Diversification is an essential principle in finance because money is distributed among different types of investments or accounts. This protects assets if some kind of market turbulence hits one type of investment and not others. Some investments, such as US Treasury bonds, are considered safer than others.
You can save consciously for your whole career, but if you have piles of high-interest debt, you will always have a hard time retiring. Some debts, such as a mortgage, are difficult to avoid and can have financial consequences later. But other types of debt, like credit cards, should be avoided. These balances carry high interest rates and do not help you build equity like a mortgage does. Do your best to pay off your credit cards monthly to avoid building up large balances.
Talk to a financial planner
Planning your financial future can be tricky. If you can, try to find a financial planner you trust to help you make informed decisions and educate you on all your options. These professionals are trained to help you understand your money and help you make choices, but do your research and make sure you are choose one who has your best interests in mind.
Making the right decisions for your financial future is an important step that requires a careful assessment of your situation and your goals. These basics provide a solid foundation for making good choices today that will have a positive impact on your future. Saving, diversifying investments, and avoiding debt are all helpful first steps toward long-term financial freedom.
Finance FYI is presented by 1st Security Bank.
AT Washington’s 1st Security Bank, we take a personalized and personal approach to your financial well-being. We live in the communities we serve, so our branches offer tailored solutions to their communities. We believe relationships make the difference, which sets 1st Security Bank apart.