Many of us are looking forward to a secure financial future. We strive to manage our money in a smart way, invest in savvy investments, and be mindful of our spending. We understand that a successful financial future doesn't just arrive. You have to plan for it, starting now to lay the groundwork for security that will last for decades.
What are the exact steps you need to follow in order to lay the proper foundation for your financial future?
1. Decide What You Value and Set Your Priorities
The first thing you need to do for a solid financial future is to understand what you value most. If you have no idea what matters to you, then it doesn't really matter what you do with your money. Think about what you value in life. Don't look at your financial future as a series of money and life milestones you're “supposed” to reach.
Instead, think about the things that are most important to you, and what you want your life and retirement to represent. Being able to plan from a place that recognizes your priorities can give you direction, and help you lay a financial groundwork that makes sense for you.
2. Acknowledge Where You Are Now
Next, you need to acknowledge where you are now. Be honest about your current situation, and then consider how that plays into your values and priorities — and your needs for the future. Look at your current assets and liabilities, and track your spending. Do some of your expenses go against your values? If so, it's time to reform your spending so that it better tracks your priorities.
You should also know what you have in terms of assets. Do you have what you need to build a firm foundation for your finances? Do you have an emergency fund? Have you started investing in retirement? Do you have too much debt? Once you know where you are, you can start figuring out what you need to do in order to improve your situation.
3. Look Ahead to Milestones
Now is the time to look ahead to your financial and life milestones. Your milestones should be based on the goals you set around what you value most. Some of the common life and money milestones that many people consider include:
- Buying a home
- Having kids
- Family vacations
- Paying for college
- Paying for your kids' weddings
- Starting a business
You might have some of these goals, or you might have other goals that aren't on this list. Think about some of the major expenses you're likely to have as you go through life. Knowing what's ahead is vital if you want to make plans that encompass the life you want.
4. Put Together a Plan
Now that you have an idea of what matters, and you know where you stand now and where you would like to be later, it's time to make a plan. Your plan for the future should include timeframes for accomplishing your goals. This means taking into account some of the realities of your goals.
If you want to buy a home in five years, you'll need to put more money toward saving up for a down payment. However, you still need to plan for long-term milestones like paying for your child's college or retirement.
The good news is that if you have longer to save for these things, you can set aside a smaller amount each month. The earlier you start saving and investing, the better off you'll be.
Look at it all now so that you know what to expect, and what needs to be done in order help you reach your long-term and short-term goals.