Starting Point:Your Current Location
Your roadmap to financial success cannot begin until you’ve taken a good long look at where you are now. Take some time to assess your current financial situation so you have a point of reference to move forward from. Give yourself an entire month to monitor your spending to get a well-rounded idea of your current habits.
Keep close tabs on your receipts
Maybe you already do this, but if not, keep ALL of your receipts for a month in a centralized location, and when the month is over, go through them. See what amount of money you’ve spent on groceries, entertainment, dining out, and other activities to help figure out where cuts can be made. There are smart phone apps you can use, or online banking tools to help you with this task.
Evaluate the essentials
Make a list of exactly what amount of money comes into your household each month, what you pay in bills and how much you are actively saving. You may find that you are not saving as much as you could.
Choosing Your Destination: Setting and Prioritizing Goals
Now that you have a handle on your spending and saving habits, how do you prioritize?
Short term goals
Pay yourself first—Set aside a percentage or specific dollar amount from your paycheck that will go right to your savings account. Many banks will even let you divide your direct deposit between numerous accounts. By paying yourself first, you are sure to save more, and adjust your budget accordingly, rather than just save what is left over after all of your bills are paid.
Long term goals
Debt management—Choose what you want to pay down first. It could be credit card debt, student loans, your mortgage or any number of things. Think about how much each of these debts are costing you in terms of interest rates. You should try to pay the debt balances with the highest rate of interest first.
Buying a home—If buying a home is one of your long term goals, make sure to keep your credit rating in mind so that you receive the best financing available to you. Generally, lenders believe your mortgage should not take up more than 28 percent of your income. But you have to ask yourself realistically, can you budget for that much debt?
Avoiding potholes: Vehicles for a smooth road to financial success
When you go on a long trip, you always pack to be prepared, right? You make sure you have enough gas, a spare tire and jack just in case, your cell phone charger and maybe some food and water in the car. You should also have a backup plan in the case of financial emergency or unexpected bumps in the road.
Have an emergency fund
An emergency fund should be a savings account separate from your primary savings account. Your fund should be at least three months of expenses per each salary in your household. This money should be used for emergency medical bills, unplanned vehicle repairs, loss of a job, or the demise of a large appliance.
Save for retirement
The most important thing to remember about retirement savings is that there are no loans for retirement! It is recommended for a person in their 30s to be saving 10-15 percent for retirement. If you have a retirement plan at work, take advantage of it or set up your own Individual Retirement Account (IRA).
Start a college fund
If you have kids, it’s never too early to start a college fund, but this needs to happen after the emergency and retirement fund. When you feel that you are financially secure, start saving money for college. Look into 529 plans and other tax preferred vehicles that can help you save for your child’s education.
Insurance is one of the best ways to help you manage risk. Many types of insurance—including life, disability and homeowner’s/renter’s—can help you in different ways.
Documenting the Trip
There are four essential legal documents everyone should have in place to protect themselves and their legacy from unforeseen tax consequences, the grueling process of probate or family turmoil. These documents are especially vital for same sex couples, and if you have children under the age of 18:
General Durable Power of Attorney (POA)
Medical Power of Attorney (POA)
Advanced Medical Directive (AMD)
Co-pilot: Working with an advisor or financial planner
Glass Jacobson’s financial advisors can work with you to set goals and priorities, build a plan and stick to it. Our team can help you avoid unexpected income tax consequences, maximize your return on investment, and make smarter financial decisions. You can find tools on our website at GlassJacobson.com/tools-resources to help you.