Life is truly an ongoing learning experience. It begins when you take your very first breath at birth and the learning process doesn’t stop until you take your last. That’s the way it’s supposed to be and hopefully you do learn and if you stumble a bit, you just don’t get hurt and you try never make those missteps again.
It’s a lot like when you learned to ride a bike when you were a kid. You probably were a little scared and maybe fell off a few times, but eventually you were able to do it pretty well. You probably had some help to get that done too. After all, learning from someone who has mastered a skill is a great way to hone your very own. Whether it’s riding a bike or building a strong financial foundation, the same principles apply.
Why do you need to build a financial foundation?
Just like you needed your bike to get around and go where you wanted to go as a kid, building a strong financial base will get you where you want to go in life. But, you’ll never get there without a plan and that plan is something that has to be on the top of your priority list. Ideally, it needs to start when you are young to maximize your financial potential. But as important as it is to start young, it’s just as important to start now! No matter what your age, if you haven’t begun the learning process about your finances, it’s never too late to start.
8 strategies to master and build your financial foundation
- Build a budget to master your knowledge of your expenses, income, and cash flow. Control, reduce, and eliminate debt.
- Learn your risk tolerance and invest for your future.
- When investing, learn asset allocation to reduce volatility and protect against inflation.
- Learn about the ever-changing tax laws and avoid mistakes and penalties.
- Protect yourself with insurance policies to prevent devastating costs associated with things like poor health, accidents, liability, and long-term care.
- Plan and save for your retirement.
- Determine the “when time” you will claim Social Security benefits to enhance and maximize them.
- Plan and preserve your estate for your heirs or for charity.
Where do I start?
One of the most basic concepts you deal with as an adult is managing your income every day. As soon as you start earning your very first paycheck, you begin to make decisions on where it will be spent, saved, invested or…wait for it: wasted! In order to succeed with your earnings and maximize every penny, you first have to determine what you really need and where your money is actually going. Once you know, it’s “let’s make a budget” time.
That is done by making a list for all of your necessary expenses and then tracking how much you need to spend. Those who do that soon realize how they can actually make their incomes work as opposed to others who just spend without a plan, over extend their use of credit, accumulate debt, and wind up never building for their future. They only deal with the “now” and forget about the “then”.
If you want to live a long, prosperous, and comfortable lifestyle, even one that involves lots of comforts and luxuries, there are only a couple things you can actually do to support that desired lifestyle:
- Move up in your career and earn lots of money
- Look at what you spend and stop wasting your money by spending smartly with a good plan
- Control your debt
- Take care of your health (without which you will spend excessively)
How long am I planning for?
You are in this life for the long haul. At least that’s the plan. Life expectancy today is longer than ever before and because it is, you need to cover many years of life’s expenses that your parents, grandparents, and great grandparents may not have even considered. Here are a few quick facts.
According to the Social Security Trustees Report of December 28th 2016, the average life expectancy for a 65–year-old male today is to live to 84.1 and for a 65-year-old woman is 86.5. Even more dramatic, statistically, one of those two has a 50% chance of living to age 92! That may mean that your money has to last you for as many as 20-27 years after you reach your retirement age and even longer if you are planning to retire early. And, oh yeah, there’s a little something called inflation that will make everything even more expensive as the years roll on by no matter what you actually save.
Planning for your retirement when you are a 20 something?
Establishing your retirement plan when you are beginning your working life isn’t silly or unnecessary. It’s the exact opposite. Saving in a retirement plan and investing while saving money for emergencies are just as important as anything else in your budget because at some point in your life you will stop earning wages and only be spending…that’s called retirement.
Time is on your side when you are young and the longer you put away funds for a time that may be 30, 40, or 50 years away from now, your money will grow exponentially to outrageous numbers even when a conservative approach is taken. If you start prepping later for retirement, you may fall way short of what you will need. If you have a 401(k) at work or some other kind of retirement plan, maximize it as soon as you are eligible.
Put a price tag on your retirement
Will you need $1 million or $2 million? Whatever that number is in your mind, it won’t be there without a plan. Your IRA along with your Social Security benefits and investment income or even a passive income stream such as from rental property or even a side income from a part-time job or side hustle after you retire are all part of how you will deal with the distant future as you think about it at this moment.
Your health will impact your retirement and life
Almost two out of three Baby Boomers when asked, say that they want to keep on working (or that they may have to) when they reach retirement age. Gen Xers were even higher at 79%. Realty is that today, just 17% of Baby Boomers are actually working after retiring according to Employee Benefit News of December 2016. The reasons are twofold: poor health and no suitable jobs. They may have done all the right things in the planning process, but as you can see here, there is always the unknown and that makes having your plan in place even more important than ever before.
Don’t be afraid to prepare
According to the Employee Benefit Research Institute, in 2016 only 28% of pre-retirees think that they will have enough money to retire. Even worse, less than 50% of those have even tried to figure out what they will need when they retire. It is a simple fact that more people will have success in their retirement and a more comfortable life if they think about what they will need and plan accordingly long in advance of the day they retire! That’s “why you need to build a strong financial foundation”.
Are you on the right track to prepare for a comfortable life in your retirement? Even if you are far from retirement right now, have you even thought about it? Where are you on the list of building blocks of the 8 strategies? Are you worried about what your life will be like when you retire and are you prepared and ready for what could be the best time in your life?