5 Personal Finance Tips for Long-Term Success
Financial independence is a lofty goal for most people, but it’s not unachievable. If you start with a solid, long-term plan for your financial future, you can do more than just meet your money goals. Here are a few tips to get started on the road to financial freedom.
Look at the Big Picture
Good financial planning means understanding everything about your financial health. Start by gathering all your bank statements, mortgage bills, credit cards, and pay stubs. These documents help you understand how much you’re spending versus how much you’re earning. Remember to calculate interest rates for debts, so you have an accurate picture.
Create A Budget
Once you have a better idea of how much you earn versus your monthly expenses, you can begin to create a workable budget. Your budget should be a realistic approach to managing money. Many people slash their spending and then give up when the budget doesn’t work. Realize that your financial budget is a flexible number that changes month-to-month, rather than giving up entirely.
Build an Emergency Fund
Your budget should include future expenses that are almost guaranteed to happen at some point. Saving for these expenses in an emergency fund will keep you on your feet in dire times. For example, you might set aside money to cover the cost of a flat tire before it happens.
Experts recommend you start your emergency fund by saving at least six months’ worth of living expenses. At a minimum, experts say to start with a goal of $1,000 in savings and work from there. Emergency funding should be difficult to access, so you’re not tempted to use it for things that aren’t actually an emergency.
Set Up a Healthcare Contingency Plan
As a young adult, you should have a healthcare contingency plan in the event you are unable to make decisions yourself. These documents establish a healthcare power of attorney and a living will with your wishes. Laws vary by state, so consult with a lawyer to help you establish this plan.
Look into Life Insurance
Establishing a good financial plan includes a provision for what happens to your family after you are gone. Choosing between term, whole, and universal life insurance is a decision that should be part of your finances. It’s a complicated decision that may require consulting with a life insurance professional to ensure you receive the most out of your premium. If you have a spouse and children, you may need more than you think, with an adequate amount to cover the cost of the mortgage and education expenses down the road.
If you have an estate to be distributed among several heirs, an estate planner should be part of your financial plan. The complexity will depend on the assets that are to be divided up. Basic estate planning includes a will and a living trust. A living trust avoids probate and lets you set the terms of the distribution of assets to your heirs, as long as those assets have been rewritten in the name of the trust.