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

By Christopher Haymon

Christopher Haymon is the founder of Adulting Digest.

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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

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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?

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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!

Overlooked Aspects of Planning for Retirement

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If there’s one thing we all have in common in personal finance, it’s that the finish line is retirement. Most of us are working our entire young lives to make sure we are financially comfortable and secure in our 60’s and beyond (or earlier, if you’re strategic!).

It is, however, easy to let some aspects slip into the cracks. Here are some key pieces of retirement that we noticed tend to get overlooked, and how you can get started on including them in your financial retirement plan.

Having enough life insurance coverage

As we get older, unfortunately the reality of death gets closer. It’s understandable as to why people are more likely to overlook this step, but it has to be considered and planned for - what will happen to the finances when one spouse passes away?

“Here are some crucial facts to consider:

  • The surviving spouse will receive the greater of the two social security amounts — which is about a 30 percent loss of income.

  • The surviving spouse will typically receive only 50 percent of their spouse’s pension (if they have one).

  • Most group life insurance either reduces greatly or entirely upon retirement.

  • There is a strong probability that one of the two spouses will live into their 90s and an early death could leave a surviving spouse 20-30 years to live with these reduced incomes.

  • Term insurance will eventually become cost prohibitive or terminate in coverage as the spouse ages.

  • Health care costs and taxes will go up — the longer the surviving spouse is alive, these costs can impinge on budgets” (Marlowe 2018).

Luckily, retirement planning is our specialty. Whether you’re retiring in 30 years, or next week, we can help you go over everything and make sure you’re ticking all the boxes to guarantee you and your spouse have a stress-free, bountiful retirement.

The home you will retire to

Are you planning on staying where you currently live? Will you be moving into a senior center? Are you going to finally flock to that vacation home permanently? No matter where you end up living, you need to make sure the home is adjusted to your needs as you continue to age. Mobility must be considered, along with the labor financial and time costs to maintain the house.

Will you be living close to your family, or moving to another country? Make sure that, where ever you move or live, you have enough access to people who can help and support you. Be candid about potential assistance needs with your spouse, and decide from there the proximity.

Having a withdrawal plan

We tend to focus so much on how we’re saving for retirement that we forget to set up a plan for how we will take out that money once we get there. There are many different strategies you can research, but general rules of thumb are to not forget about the taxes, always revisit and revise your plan, include all streams of income, try to pay off debt before retiring, and plan with the idea that the amount you withdraw every year will be different.

What aspects of retirement planning have you overlooked? Do you feel your retirement plan is air-tight, or do you need a second opinion? Contact us today and we will be happy to look over your plans and finances!

References

Coombes, Andrea (31st October, 2018). “Retirement Withdrawal Strategies: Which Should You Use?” NerdWallet. Retrieved from https://www.nerdwallet.com/blog/investing/retirement-withdrawal-strategies-which-should-you-use/

Marlowe, Robert (1st December, 2018). “The Most Overlooked Aspect of Retirement Planning.” Knights of Columbus. Retrieved from https://www.kofc.org/en/news/insurance/overlooked-aspect-of-retirement-planning.html

Wroblewska, Anna B. (9th February, 2015). “The Most Overlooked Aspect of Retirement Planning.” Motley Fool. Retrieved from https://www.fool.com/retirement/general/2015/02/09/the-most-overlooked-aspect-of-retirement-planning.aspx