If you don't earn a high income, you may not feel that financial planning is something for you. But, in fact, financial planning can be even more important when you don't have a lot of room to absorb financial emergencies. If this is your situation, here are 5 ways you can implement a financial plan of your own.
Avoid Interest-Carrying Debt
Getting rid of debt and avoiding it in the future are two of the most valuable ways you can improve your long-term financial situation. With credit cards carrying an average interest rate of more than 12% in 2017, you can get a huge bump in your savings and investment options if you can simply slash that debt.
Look for a Fee-Only Planner
Many financial planners are geared toward higher income families, but you can find ones that work with lower earners as well. These are usually "fee only" financial planners. These types of planners charge a set fee monthly, annually, or per visit to help you get your finances on track.
Increase Retirement Contributions Gradually
Start your financial plan by reviewing how much you contribute to any retirement plan available. If your employer offers a 401(k), check to see if there is a company match. Contributing at least enough to get the full company match is like getting up to another 4% raise...all tax deferred.
Even if there is no match, you can still start contributing a small amount—even just 1%—to get you started. Make it a habit to increase that percentage any time you begin to earn more money by getting a raise or you receive a bonus. In addition, increase it by a minor 1% annually. Soon, you'll have a healthy nest egg. You can do the same with an IRA (Individual Retirement Account) by setting aside a percent of your income or a set dollar amount each month (or year).
Make Better Use of an HSA or FSA
Another great planning tool that many have access to is a Health Savings Account (HSA) or Flexible Spending Account (FSA). An HSA comes with many high deductible health insurance plans and allows you to put aside up to $3,400 tax free if you eventually use it all for medical expenses. An FSA must be spent annually, but is often offered through an employer and with a debit card. Both accounts not only reduce your taxable income but also help you plan for medical or child care costs.
Take a Long Term Approach
Planning for your financial future is a long term task, so don't get sidetracked by short term problems. Short term solutions like pausing contributions, taking money out of your retirement plan, or adding interest-bearing debt can all derail your financial plan. Talk to your financial planner if you get skittish about your stock market risk or face a loss in income before you come to any firm decisions.
Even if your savings and income are small, you can still approach your finances with a view toward long term goals and overall stability. By following these 5 tips, you can reach those goals earlier than you though possible.
Share10 October 2017
I have worked hard to teach my kids the true value of a dollar. My kids know very well that financial security only comes with a lot of careful planning and good decision making. At what age do you begin teaching kids about financial planning? Is there anything that you can do to ensure that your kids know and understand the importance of learning about the true value of a dollar? Our family's blog will help you gain a good understanding about teaching kids about money and how to prepare for their future lives as adults raising a family of their own.
