Planning for your financial future is a critical endeavor, yet one that many overlook or fail to nurture. Some may feel that financial planning is only for the rich; others may feel that they’ve already done it — for instance, by investing in the stock market, they feel that the job is complete; still others do not understand financial planning and avoid it, fearing that it is an unsurmountable task.
There are fundamental steps you can take to get on-track with your financial plan.
As we usher in the New Year, it’s the perfect time to begin focusing on for your financial future, which begins by developing (or refining) your financial plan. Below are key steps you can take:
1. Start young: Invest and save early and often, as a small recurring investment over a long period of time has the potential to produce greater returns than investing a larger amount over a shorter period of time. Additionally, getting an early start allows you time to recover from errors or market downturns. For instance, If you invest $75 a month beginning at age 25 and continue until you are 65, your earnings will be greater than the 35-year-old who invested $100 a month until reaching 65 (This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical example assumes an equal rate of return and does not reflect the deduction of fees and charges inherent to investing).
2. Plan for an emergency: Expect unexpected expenses, such as those for a medical emergency, major car repair, and an appliance replacement, establishing an emergency fund that can pay for these costs. Additionally, you’ll want to keep three to six months of living expenses in the fund, in case you lose your job. Without such a backup source of funding, you may have to incur credit card debt.
3. Invest for Retirement: Saving for your retirement is a personal decision that will help shape your lifestyle during your Golden Years. It’s never too early (or late) to begin investing in your future. Consider an individual retirement account (IRA) or a 401(k), which offer tax deductions and tax-deferred growth opportunities. A common guideline is to put at least 5% of your income into a retirement account.
4. Diversify Risk: Whatever your investment plan, consider diversifying your portfolio and including multiple asset types. This can help balance your risk, in the event of market swings. Additionally, look for investments that carry low administrative fees, which has the potential to save you thousands of dollars over 20 or 30 years.
5. Review Your Plan: Establishing a financial plan is not a one-and-done proposition. Review your plan regularly (at least annually), revising it as necessary to align with your financial circumstances and goals.
6. Seek Help: Planning for your financial future includes myriad considerations; a financial professional can be helpful in getting your plan on the right course. Their training allows them to take a comprehensive assessment of your financial needs and goals and designing a strategy that optimizes your tax consequences. Additionally, they can help you avoid mistakes that arise from inexperience or emotional decisions.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Qualified accounts such as 401ks are accounts funded with tax deductible contributions in which any earnings are tax deferred until withdrawn, usually after retirement age. Unless certain criteria are met, IRS penalties and income taxes may apply on any withdrawals taken prior to age 59 1/2. RMDs (required minimum distributions) must generally be taken by the account holder within the year after turning 72. This material was prepared by LPL Financial. Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity.
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