The 4 Steps You Need to Take to Secure a Healthy Financial Future

By Christopher Haymon

Christopher Haymon is the founder of Adulting Digest.

1.jpg

Are you planning for your financial future? If you’re like the average person, you’re more focused on today than tomorrow. But failing to plan comes with major consequences, and they don’t always wait until you’re 65+ to strike. These are the four steps you need to take to protect your family today and into the future.

1. Plan for Emergencies

According to a survey from GoBankingRates, 69 percent of Americans have less than $1,000 in their savings account. That’s less than you need to cover a broken furnace or a trip to the emergency room, let alone a major event like losing a job.

If you’re among that 69 percent, prioritize building an emergency fund over other financial goals. Your emergency fund should cover three to six months of living expenses. This includes non-negotiable expenses like mortgage or rent, car payments, and utility payments, food, and gas. The exact amount in your emergency fund depends on your expenses along with other factors, such as benefits you might qualify for if you lost your job.

It’s also beneficial to have a general idea of how much your assets are worth when planning for emergencies. Assets include your home, cars, investments, and other items of value you own. You can use an online estimate to calculate an approximate value for your home.

2. Pay Down Debt

Debt seriously hampers long-term savings goals, especially if you have a lot of bad debt. Debt.org defines bad debt as debt that doesn’t increase your net worth or hold future value, and it’s this debt you should focus on paying off first. Common forms of bad debt are credit card debt and car loans. While student loans are often considered good debt, high balances can still make this debt burdensome, especially for privately held student loans with high interest rates.

There are two philosophies regarding paying off debt: paying off debt with the highest interest rate first, to minimize the total amount paid over time, or paying off debts with the smallest balance first, to build motivation by eliminating debt accounts. Choose the strategy that works for your finances and your morale.

3. Invest in Good Insurance

Life is full of unexpected events. If you’re not prepared in the event of a medical emergency, disabling health condition, or early death, you’re putting your financial security at risk.

Paying hundreds of dollars monthly for insurance is a hard pill to swallow, but when you look at the numbers, investing in insurance makes sense: one in four people will spend at least three months out of work due to a disabling condition, the average funeral cost is over $7,000 and is rising, and medical debt is the leading cause of bankruptcy in the US.

Most Americans understand the value of a good health insurance policy, but life insurance and disability insurance are less understood. Disability insurance pays a portion of your income if you’re unable to work, both short-term and long-term disability policies are available. Many workers can purchase disability insurance through their employer at a discounted group rate. Life insurance pays money to beneficiaries in the event of the policy holder’s death. It’s important to have this if a spouse or children depend on your income or if you don’t have savings to pay for funeral expenses (though many people opt for burial insurance to help cover the cost of funerals). While many people opt for term life insurance due to lower premiums, a term policy doesn’t accrue cash value. Purchasing a whole life policy instead gives you the option to sell the policy later on to free up cash for retirement.

4. Save for Retirement

Unless you want to work until your final day, you need retirement savings. If your employer offers a 401(k), this is the best place to start. Workers contribute pre-tax income to a 401(k) through payroll deductions, and some employers match that contribution up to a set percentage. To save beyond the annual 401(k) contribution limit, or if you don’t have a 401(k), look to IRAs. You can save either pre-tax with a traditional IRA or post-tax using a Roth IRA. If you’ve maxed out both your 401(k) and IRA, talk to your financial advisor about other ways to invest.

You can’t afford to put off thinking about the future. While today may be comfortable, tomorrow won’t be without a strong financial foundation. Whether you’re just getting your finances on track or looking to expand your investments, talk to a financial counselor about how you can better prepare for your financial future.

5 Money Goals to Make to Build Your Future

architectural-design-architecture-buildings-830891.jpg

In most aspects of life, the journey itself is just as important as the destination. This includes the path you need to take to get your finances in order. It can be intimidating - but with the right directions and guides, it definitely doesn’t have to be!

Here are five goals you can get started on today to pave your path to financial success and stability:

Determine a budget

The first thing you want to do is collect all your statements, account balances, and any money hidden anywhere, and figure out how much you have on you right now. If you don’t want to crunch the numbers yourself, sites like Personal Capital can quickly do this and display everything nice and neatly for you - for free!

Once you’ve figured out what you have and what you owe, it’s time to set up a budget. There are a few ways to do this:

  • Flex those Excel skills and create a spreadsheet, where you can track monthly, weekly, or even daily;

  • Use a budgeting app like Mint, which can send you notifications in real-time about your budget (the “Set it and Forget it” method);

  • Set a meeting with your financial advisor (wink wink) and set up a budget for you together - this can allow for flexibility and you won’t be tracking it alone or relying on a robot.

Once your budget is set, you can see exactly how much you need to survive the day-to-day, along with how much you can allocate towards debt, savings, and investments.

Click here to read about how budgeting can change your life.

Prioritize your debt

The next step is to start ticking away at those loans. Your budget will show you how much you can spend monthly on your loans - now start applying it! The nice thing too is that you can adjust numbers here and there depending on if you want to be more liberal or conservative with your debt repayment - just make sure you adjust the rest of your budget to make up for the difference so you don’t end up putting more money towards your payments than you can actually afford.

Read our guide here on how to begin tackling your debt!

Decide how you will contribute to retirement

After setting a budget and paying off your debt, the next task you’ll want to tackle is getting yourself set up for retirement. What kind of account do you want to contribute to? Does your company have a 401(k), or will you need to open an IRA? Be sure to research all your options, and pick the plan that’s right for you.

Roth or Traditional? Which IRA Is Right For You?

Don’t forget to address these aspects of retirement that are often overlooked!

Figure out how to make your money grow

Congratulations! You’re beginning to set up a nice cushion for yourself. But - don’t get too comfy yet. While having a stable income is good, don’t you want to learn how to earn more?

This is where investing comes in. What is considered fun or a gamble to some can be intimidating for others - what if I lose all that I’ve worked up towards? More often than not, however, investing is worth it purely for the fact that you will walk away with more than you put in. As the old adage goes - “You gotta spend money to make money.”

Again, be sure to do your research: you can start with this article here.

Seek Guidance

Even if all your ducks are in a row, having an advisor or a mentor is a great way to stay focused and to be sure you’re making the right decisions. Many of the top successful people will say that they had a mentor, and wouldn’t have made half of their money-making decisions without them.

Whether you’re planning for retirement, looking to get out of debt, or just wanting a question answered - we can help. Click here to contact us and schedule your free 60-minute consultation today!

What are your goals financially to help build and secure your future? Let us know in the comments!

Roth or Traditional: Which IRA is right for you?

adult-casual-coffee-1437541.jpg

There are many options when it comes to how to save for retirement, with one of the most popular being an Individual Retirement Account (or an IRA). With two different types leading the pack, it can be hard to determine which type of IRA you should go for. Here, we break down the differences between a traditional and a Roth IRA, as well as their advantages and disadvantages so you can determine which type is right for you.

What is a Traditional IRA?
A traditional IRA (individual retirement account) allows individuals to direct pre-tax income toward investments that can grow tax-deferred. The IRS assesses no capital gains or dividend income taxes until the beneficiary makes a withdrawal. Individual taxpayers can contribute 100 % of any earned compensation up to a specified maximum dollar amount. Income thresholds may also apply. Contributions to a traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status and other factors.” - Investopedia

Pros

  • Tax deductions are made with pre-tax dollars

  • Flexible contribution restrictions

  • Extended contribution timeline per year (15.5 months instead of 12)

Cons

  • Required minimum distributions

  • Employer plans can interfere with tax-deductible contributions

  • Restrictions on investments

  • There are penalties for early withdrawal

What is a Roth IRA?
Roth IRAs are funded with after-tax dollars; the contributions are not tax deductible—although you may be able to take a Saver's Tax Credit of 10% to 50% of the contribution, depending on your income and life situation. But once you start withdrawing funds, qualified distributions (see below) are tax-free.” - Investopedia

Pros

  • Savings grow tax-free

  • There are no required minimum distributions

  • There is no penalty for withdrawing contributions

  • With right distribution management, you can diversify your taxes in retirement

Cons

  • Taxes are paid upfront, rather than when you withdraw

  • The maximum contribution is low - only $6,000/year

  • You have to keep track of your account and set it up yourself

  • You can only open a Roth IRA if you meet the income limit requirements

Is one better than the other?

Not necessarily - the biggest difference between the two is how the contributions are taxed, so, depending on your situation, this will be the biggest factor in your decision. Your income will also help - if you make too much to contribute to a Roth IRA, then the decision’s been made for you.

Typically, people will opt for a Roth IRA if they can, mainly because of the lack of restrictions for withdrawals and during retirement. Also, while you may be getting an immediate benefit of tax breaks now when you contribute to a traditional IRA, you’ll have to deal with that when you retire. In the end, it’s up to you to decide which IRA is best for your situation.

Which type of IRA do you contribute to? Do you think one is better than the other? Let us know in the comments!

Investing for Beginners: When, Why, and How

businesswoman-career-communication-789822.jpg

Almost every financial advice resource - from your advisors, to online blogs, to your family member you only see once a year at reunions who claims they know more about money than anyone else in the family - says that in order to have stable finances and independence, you should invest your money.

Sure, it sounds like a smart thing to do. All the rich people do it, right? Why shouldn’t I?

So, you sit down at your computer, and you wonder - how do I even begin? What is a stock? How do I “match my 401k?” What about my debts?

With all these questions in your mind, it’s easy to put investing off until you think you’re ready. But we’re here to tell you - the sooner you start investing, the better off your future will be. Even if it’s small, investing should absolutely be included in your financial planning.

Here’s our quick-start guide on how to research, prepare, and begin investing:

Figure out your why, and why now.

You’ve probably heard many times with almost every smart habit to just start now. Just start exercising now. Just start eating healthy now. Quit smoking now. Start saving now. The same can be said of investing - to an extent.

If you are in a viable position where putting money into investments won’t hurt your current living situation, then start now. If you don’t have savings, or have a huge loan to pay off (such as school), or if you haven’t done your research, make sure these are done first.

Best of all - if you can figure out how to manage these aspects and put a little way to start investments, then you’re golden.

Make sure you also figure out why you want to invest, as this will help you determine what to invest in. Is your goal long-term or short-term? Are you buying a house? Are you saving for retirement? Clearly determining your why will set you up on a much more successful - and much less intimidating - investment path.

adult-boy-break-306534.jpg

Learn the different types of investments.

There are many different options to choose from, and investing smartly means choosing the options that are best for you. These types include:

Stocks - These are probably what you think of when you hear “investing”. A stock is a share of a company that you purchase at a price determined by the stock market (depending on market climate and how well that company is performing). As a shareholder, you have the opportunity to vote at shareholder’s meetings, as well as receive dividends (which the amount is determined based on if you hold a common stock or a preferred stock).

Bonds - These are loaned by an investor to a company in exchange for interest payments plus the bond’s face value when the bond matures. Bonds are issued by corporations, the federal government, and states and municipalities.

Mutual Funds - Managed by an investment manager, mutual funds are pools of investing money that can be used in stocks, bonds, and other types of investments simultaneously. Mutual funds are valued at the end of a market day, and can be accessed and traded after market hours as well. Distributions are made in the form of dividends, interest, and capital gains.

ETF’s - Similar to mutual funds, but are traded on stock exchange during the market day. ETF’s are valued constantly while markets are open, unlike mutual funds.

Real Estate - These are made by purchasing a property directly - residential or commercial. These investment trusts are then pooled together with the investor’s money and purchase properties, and traded like stocks. Mutual funds and ETF’s can also invest in real estate investment trusts.

Hedge Funds - Only open to those who meet income and net worth requirements, hedge funds can virtually invest anywhere and are more likely to hold up in more volatile markets.

Private Equity - Another type of investment that has income and net worth requirements. This is a way for companies to raise capital without going public.

401K - Did you know that matching your employer’s contribution to your 401k is considered an investment? If your company offers this, take advantage of it as soon as possible. While it may be hard to part with that money now, your future self will certainly thank you later.

Determine your course of action.

Now that you have a better idea of your options, it’s time to make a plan. While it is possible to plan on your own, it’s much easier to find a professional who can help you. When you meet with Milborn Advisors, you will be asked to prepare all necessary documents to see exactly how far you are on your financial journey and if you are ready to invest. We’re even able to help you set up your investing account through TD Ameritrade - you tell us what you want to invest in, and we will take care of the rest!

Investing can be scary, but it doesn’t have to be - as long as you know why you want to invest, what you can invest in, and have a strong team behind you, you can absolutely use investments to supplement your financial goals!

Contact us today for your free consultation!

What’s holding you back from investing? Let us know in the comments!