7 steps to get your financial priorities in order
How do you keep everything on track when you’re juggling lots of financial demands? It takes planning and prioritizing. These 7 steps can help.
1. Focus your financial plan.
Competing (and sometimes unexpected) financial demands are a fact of life—the furnace breaks, the car needs new tires, taxes are due, you know how it goes. The trick is not letting these inevitable expenses derail saving for retirement.
“You’re building a foundation for your future,” says Robert Payne, senior financial services representative with Principal® in Greensboro, North Carolina. “And the foundation should include saving for retirement, creating an emergency fund, and getting out of debt.”
2. Build an emergency fund.
Start by saving at least one month of income in your account. Then work up to at least 6 months' worth of living expenses in a high-interest rate account. Check bankrate.com for best interest rates.
Payne suggests earmarking 10% of your paycheck for your emergency fund until you’ve hit your goal, adding more as your pay and living expenses increase. And whenever you tap the fund, make rebuilding it a priority.
3. Protect your financial foundation.
“Consider adding life insurance and disability insurance to cover you if something unexpected happens,” Payne says.
If your income suddenly stopped because you became too sick or hurt to work, think of the impact it could have on things like your health expenses, retirement savings, and budget. Protect your lifestyle and future savings with disability insurance.
Life insurance helps provide financial support to the people you love when you die. The benefits are income tax-free and they can use the money however they need. Certain types of life insurance can also provide cash value benefits while you’re living to help with expenses.
4. Keep saving for retirement.
Funding retirement is every bit as critical as building an emergency fund. The most common mistake people make is waiting to save.
“Few things in life have the impact of compound earnings,” Payne says. The longer your funds grow, the more you may have available to you in retirement, he says.
Consider setting a goal to contribute the maximum amount to your employer’s retirement plan—or whatever it takes to get the full employer matching contribution, if that's available.
Start saving early and set your contributions to be automatically payroll-deducted.
“Keep increasing your contribution over time,” says Jeri D'Lugin, JD*, CLU®, AEP®, senior financial services representative with Principal and Payne's business partner. “Most people won't notice much of an impact on their budget, but it has the potential to add up.”
Remember: Life doesn’t always go as planned, which can affect your savings. Disability Insurance Retirement Security can help you continue to save for retirement if you can’t work because you’re sick or disabled.
5. Pay down high-cost debt.
Most of us have car and home payments for a big chunk of our lives. But you can eliminate credit card debt and other high-interest debt.
Whenever possible, pay more than the minimum due to wipe out this debt more quickly. “Getting out of debt gives you a cushion,” Payne says. “It gives you the choice to purchase rather than to finance.”
6. Budget for future expenses.
Once your emergency fund and plan for retirement are on track, start saving for foreseeable expenses, such as a new roof or a special vacation.
One way to “find" that extra money: Whenever you pay off a car or other installment loan, continue putting the same monthly amount into a savings account, so you'll be ready for the next big expense.
7. Contribute to a college fund.
You may choose to open an education savings plan or a Roth IRA to save for your children's or grandchildren's college costs. But put your own savings first. “A student can often find financial aid for college, but there are no loans available to pay for your retirement expenses,” Payne says.
And when it comes time for your child to apply for financial aid, “funds in a retirement plan won't count in assessing their financial need,” he says. “That may make more funding sources available for college.”
* JD is an educational degree and the holder doesn’t provide legal services on behalf of the companies of the Principal Financial Group®.
Disability insurance has exclusions and limitations. For costs and complete details of the coverage, contact your Principal® representative.
DI Retirement Security is issued as non-cancelable, guaranteed renewable, individual disability income insurance policy. It is not a pension or retirement program or a substitute for such a program. DI Retirement Security is not available for anyone who is over insured based on Principal Life’s current Issue and Participation guidelines. It may not be available or the benefit may be reduced for certain occupations if there is existing DI coverage with lifetime benefits. Additional underwriting guidelines may apply.
This information is provided with the understanding that Principal® is not rendering legal, accounting, or tax advice. Consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
All guarantees and benefits of the insurance policy are backed by the claims-paying ability of the issuing insurance company. Policy guarantees and benefits are not backed by the broker/dealer and/or insurance agency selling the policy, nor by any of their affiliates, and none of them makes any representations or guarantees regarding the claims-paying ability of the issuing insurance company.
Insurance issued by Principal Life Insurance Company and Principal National Life Insurance Company (except in NY), Des Moines, IA 50392.