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Action steps toward a secure financial future
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1. Create a budget. Know what is coming in and identify what is going out. Make sure spending reflects values and priorities.

2. Credit is a necessary evil. Since it is unlikely that you will purchase a home without a mortgage, you will need to build your credit. Carefully select a card after weighing all the costs, charge only things you would pay for anyway--gas, cell phone, etc. People spend 12-18% more when using credit rather than cash so resist any temptation to use the card for discretionary spending. Pay it off, in full, each month.

3. Make sure you have a risk management plan. Often health and disability insurances are provided by your employer. Review the benefits and determine if you need supplemental coverage. You may or may not need life insurance.

4. Get a basic Estate plan: Advanced Directives and Financial Power of Attorney. Those with assets may need a basic will.

5. Limit housing costs to 25% of gross income.

6. 15% of your gross income should be invested for retirement. (You can reduce this by any employer match.) If you can’t afford that, do as much as you can. Strive to contribute at least enough to benefit from the full employer match. Consider allocating half or all of future raises until you hit that goal.

7. Develop a plan to retire your debt. The rates of interest you are paying will determine this priority over funding of other goals. If you are living at home or have roommates, money not spent on rent can be used to accelerate debt repayment as well as build emergency reserves. Avoid financing anything in the future that does not increase in value. When you must borrow, proceed with caution.

8. Begin building an Emergency Fund of a minimum of 3-6 months living expenses. This will take time.

9. When you can afford it, begin putting money aside for the purchase of your first home or to start a business.

Ideally you will make progress on numbers 5 through 9 simultaneously. High interest rates may shift the priority to paying down debt. Employer matches may shift the balance in that direction as you don’t want to walk away from free money. If possible, delay marriage and starting a family until you are on track to achieve financial security.

 

 


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