Building a Strong Financial Foundation
What do I mean by Building a strong Financial Foundation? Just like when you build a house you need a strong foundation anchored to the ground your financial foundation is built on proper protection.
Proper Protection protects you and your family’s hard earned savings for unexpected health issues or premature death. One of the most critical aspects of proper protection should include Long Term Care. A very cost effective way to include Long Term Care protection is to add a rider to you life insurance policy.
The next critical item is the need to address your debt liability and eliminate your debt. If you do not address your debt you will never be able to start to build your long-term savings.
When we talk about creating an Emergency fund you should set aside 3 to 6 months of your income to manage the unexpected expenses such as repairs to your home or car. With today’s economy it’s even more critical to have an emergency fund to address the unexpected loss of income due to job loss.
Once you have the foundation built you can its time to create your portfolio of long-term savings for retirement. Things to consider are how much income will I need during retirement. Some variables to consider are inflation and taxes. Do you feel the dollar will have the same buying power as today? Do you think taxes are going to go up or down? You may ask how much should I save? It really depends on how you want to live in your retirement years. Do you want to watch your dreams on TV? or Do you want to live your dreams? A rough average number is between 15-20% if you want to continue to live the life style and with the same comparable income during your retirement years.
Now lets look at how a lot of families are trying to save for retirement. They save what’s left after paying their expenses or invest a few percent into there 401k. But when an emergency hits they take a loan against there 401k.
This scenario unfortunately is basically the norm for many families today. They are living paycheck-to-paycheck just trying to make ends meet. Most are straddled with huge amounts of consumer debt and try to save what’s left over. When an emergency hits such as the car needing a new $2000.00 transmission they rely on credit cards. Its like a spinning top that barely keeping it’s balance.
Having proper protection and debt management are the foundation to build financial freedom. Ask yourself “Do I control my money or does money control me”? If it’s the latter its time to take control of your financial future. A good place to start is our Financial Goals worksheet down load it here. Here is a link to our post Setting your Financial Goals its a great starting point to begin taking control of your financial future.
Good Luck and Happy Saving!!