Setting Financial Priorities When Everything Is Important
Where to start and why.
Let’s say you’re in your 20s or 30s, and you’re trying to figure out what you should be saving for first, why, and how you’re going to do it. If you’re like most people your age, you’re looking at a combination of paying off student loans, saving for retirement, wanting to buy your first home or a larger one, possibly going back to school for another degree, moving and changing careers, or simply having fun. Throw kids into the mix and you need to save for their education, plus cover the overall costs of having a family.
With all of this on your financial plate, it’s easy to throw up your arms and to not want to think about any of it. That’s the worst thing you can do. Instead, realize life is a balancing act. Then, sit down and set your financial priorities. You can do it. Our step-by-step guide below can help you get started. Most important for you to remember is that you have an enormous advantage at this stage of life your age! Even the smallest of actions you take now, then gradually increase and maintain over time can pay off royally for you.
A simple guide for where to start when it comes to setting financial priorities.
1. List the expenses you will need (or will want) to cover over a lifetime.
Start with those we share above and then add others that matter to you personally, such as travel, starting your own business, helping family members financially, making charitable donations, etc. You need a plan. Putting it in writing helps to make it real.
2. Make getting rid of debt your first priority.
Whether it’s credit card debt, student loans, or loans from family or friends hanging over your head, do your best to get rid of it at this stage of life. Making monthly debt payments for years on end not only hinders your ability to save for anything else, but can prevent you from getting ahead financially in any number of ways. For instance, debt load can affect your credit rating, make it harder to get a loan for necessities, and limit your capacity to save or invest. Some people push debt so far down the road that they are still paying it off in their boomer years which, in turn, affects their ability to retire. NOTE: While paying off debt, you’ll need to discipline yourself to live within your means and not incur additional debt.
3. Next, build an emergency fund.
Because you never know when you might lose your job, get sick or hurt, or suddenly need money for things you can’t begin to imagine right now, you need to put money aside in an emergency fund. The goal should be to build a fund of three to six months’ worth of living expenses. And, make the fund strictly off limits for anything but an emergency.
4. Begin saving for retirement.
It’s hard to think 30 to 40 years ahead, especially when there are so many things you’d love to spend money on today and tomorrow. However, in your 20s and 30s is when you have time on your side. If you don’t know about the compounding of money –- also known as the time/value of money –– look it up and see for yourself how putting away a small percentage of your income now is one of the most painless ways to grow your retirement nest egg.
Experts recommend saving at least 15% of your income for retirement. To help you meet that goal, take advantage of your employer’s 401(k) match or contribution. For example, if your company contributes 4%, you only need to save 11% on your own. Also, look beyond a bank savings account for savings vehicles that pay higher interest rates.
5. Make a wise home purchase.
There’s a saying that “you make money when you buy a house, not when you sell it.” In other words, use your head not your heart when purchasing a home. For instance, buy in locations where you will be most likely able to sell your home with ease, be it on your timing or unexpectedly. If you’re the handy type, buy a fixer-upper and reap the benefits at the front end by not paying for outside services and at the back end by enjoying a greater profit.
If you have children, consider buying where a good education can be found in public schools or via affordable private school options. One young couple paid more than they had planned for their home, but with the public-school system so strong where they purchased, they will save more than $500,000 over the course of K-12 for their three children versus paying tuition at private schools.
6. Start a college-savings plan for your kids.
With your debt payoff plan in place, emergency fund established, and retirement savings launched, it’s time to put money aside for college. Maybe you’ve already started a college savings plan and, if so, kudos to you. If not, soaring college costs can appear overwhelming, so don’t hesitate to contact a financial advisor to discuss your best options. One idea to discuss is having a 529 Plan, and the appeal the Plans have for grandparents as a means to contribute to their grandkids’ education and enjoy tax benefits, as well.
Look at setting financial priorities not as a burden, but as a path to financial peace of mind. Then, get started. It’s easier than you think. And, the more you follow your plan, the easier it becomes to keep following it. Discipline becomes a habit. Success builds success.
At Lenox, we enjoy and work closely with clients in their 20s and 30s, single or married, to help guide them in every aspect of their financial life –– from setting financial priorities, to eliminating debt, establishing budgets, career planning and coaching, funding education, retirement planning, and working through financial hurdles –– the entire realm of wealth creation, wealth building, and wealth management. In every instance, we start with you, not your portfolio to help you FUND A LIFE YOU LOVE™.
If you’re ready to discuss financial, business, career and life planning that will allow you to Fund a Life You Love®, we’d love to tell you more. Let’s talk. It’s your tomorrow. Call us for a complimentary 1-hour review. Call 513.618.7080 or visit www.lenoxwealth.com to Fund a Life You Love.
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This blog is limited to the dissemination of general information pertaining to its investment advisory/management services. This is not intended to be personalized investment advice. Please contact a Lenox adviser if you would like additional information.