Wealth management is an important part of life, both now and in planning for the future. For some, financial planning begins with their first high school job. Others may start planning with their first career. Still others may wait to intentionally manage their wealth later in their years. It is never “too late” to start planning for the future. However, starting sooner with professional financial planning is most beneficial to ensuring you have the best plan based on both your current financial situation and what you hope to achieve going forward.
Developing a strong financial plan incorporates three basics: pay off your debt, save for an emergency, and craft a financial plan to take you from now through retirement. Meeting with a professional financial planner can not only help you with investing, but also to create the financial plan to pay off debt, create emergency savings, and prepare for the future.
Pay Off Consumer Debt
In our world, there are two different kinds of debt. Investment debt is debt you have because you made a strategic financial investment, such as a home mortgage. Consumer debt, on the other hand, is a debt accrued from capital purchases. This type of debt typically comes from payday loans, credit cards, and other consumer finances.
The ultimate goal is to be totally free of debt, though paying down your mortgage will take longer than, say, paying off a credit card. Getting debt free can be overwhelming initially. We suggest starting with your smallest debt, rather than that with the highest interest rate. The positive feelings that come from paying off each of your smaller debts can help spur future successes, creating a snowball effect and helping you become entirely debt free.
Work diligently to pay off all debt so you can free yourself from those chains. Once you completely zero your debt balance, work hard to keep it that way so you can effectively manage your wealth for the future. If you are unsure how to best go about paying off your debt, the Anchor Wealth Management team is happy to help you devise the right plan for your needs.
Save For An Emergency
After your debt is paid, with the exception of your mortgage, the next step toward financial freedom is to save an emergency fund. A secure sum is usually the total sum you would need to survive for three to six months without additional income.
For example, a family that has a total household income of $100,000 brings home approximately $75,000 after taxes and spends $3,000 to $4,000 in living expenses every month. In this example, $15,000 to $25,000 is a healthy amount for an emergency fund.
The emergency fund is in place for any unforeseen expenses or career change. Meet with your Anchor Wealth Management advisor to learn more about paying off debt, developing emergency savings, and other tools designed to help you create the right financial plan for your needs.
Plan Your Retirement Contributions
You’re close to financial independence once you pay off all debt besides your mortgage and have a healthy emergency savings fund. The last basic piece to financial planning is to prepare for retirement. It is also the point many people struggle with; preparing for retirement should be treated as a marathon, rather than sprinting too hard, too quickly—particularly if investing in retirement means putting yourself in debt.
Every year, there is a stated maximum that may be contributed to retirement accounts, such as 401(k)s or IRAs. In 2018, people younger than 50-years can contribute $18,500 at most. However, people older than 50-years can save “catch up” funds; this amount is $6,000 annually.
Generally speaking, folks younger than 50 should save $18,500 in a retirement fund in 2018. Folks older than 50 should save $24,500. However, that is not a hard-and-fast figure, especially if investing that maximum would cut into the pace at which you can pay off debt. Working with a financial planner can help you devise the correct amount to contribute toward investments and retirement savings.
Meet With A Financial Planner
By and large, the Anchor Wealth Management team suggests paying off debt and saving a three to six month emergency fund before it is time to dig into investments. Of course, that does not mean you cannot work with a financial planner before those specific goals have been achieved. The Anchor Wealth Management team is happy to work with you no matter where you are in your financial plan. If you are unsure how to get started, we can help you develop the right plan to pay off debt and build your savings before crafting the right investment plan for your needs. Visit our offices in Lanark and Rockford to meet with a financial planner and begin down the path of financial success. With more than a decade of financial planning experience, our team can help you navigate your financial waters.