What you define as your financial future depends, largely, on your life circumstances and at what stage of your life you are currently in. While most people have concerns regarding retirement, others also include buying a home or putting kids through college in their financial future. Getting to a point where you can realize your goals requires a multifaceted approach, complete with difficult decisions, discipline and a keen eye toward investing and saving.
1. Pay off your debt. Financial expert and syndicated radio talk show host Dave Ramsey suggests starting with credit card debt. Ramsey advocates the snowball method to reduce and eliminate your debt. This is done by starting with the smallest credit card balance, noting that the relatively quick victory of a paying it off will help you build momentum and stay the course.
2. Create an emergency fund. Once you're no longer paying high-interest rates to service credit-card balances, put money into an emergency fund. Set aside about three to six month's worth of expenses. If you lose your job or run into some other type of financial stress, this money can help prevent a financial disaster while you get back on your feet.
3. Develop an investment plan. Use your age, how much you have to start with, your tolerance for risk and your outlook on the economy to devise a portfolio of holdings that fits your investor profile. Online asset allocators, such the one offered by the Iowa Public Employees Retirement System, can help you run the numbers.
4. Invest regularly. Treat investing like paying a monthly bill. For instance, if you put $500 a month into your investments and generate a 6 percent rate of return, you'll have more than $200,000 in 20 years time. Online calculators, such as one available at Fidelity's website, can help you as well by factoring in other variables, such as inflation and your tax rate.
- Include your monthly investment commitment as part of your overall household budget. This approach can help keep your disciplined. Before making a purchase, consider if you really need to pull the trigger, and how adding that cash to your investment portfolio instead can make a difference over the long term.
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