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During your 20s, financial life planning always feels like something you’ll have to do in the future. However, as we get older, responsibilities such as children and mortgages mean we can’t afford to wing it and hope for the best anymore. Deciding to take control of your future finances is the first step, but what comes next? How do you figure out what contingencies to plan for, or what plans you need to put in place? We’re here to help.
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Children and Family
Whether you’re already a parent or are just starting to think about it, it’s important to think ahead when it comes to your family’s financial future. First, you need to consider the immediate costs, especially if you are about to start a family. Nerdwallet has found that most parents vastly underestimate the cost of a baby’s first year of life and found that it can add up to as much as $21,248. Is this something you can afford? If not, it may be a good idea to save up more money.
Then, you can start looking toward the future. The sooner you start saving for college, the better. This is thanks to the magic of compound interest: if you were to save for the first nine years of your child’s life and then stop, you would earn considerably more than if you saved between the ages of 9 and 18.
You should also have a plan to ensure your family will be okay in case you or your partner die unexpectedly. You’re never too young to start estate planning and to have your paperwork, such as a will, in order. A 30-year term life insurance may be a good choice, especially if you have recently married or have a 30-year mortgage.
Home and Mortgage
If you are looking to buy for the first time, you first need to make sure your finances are ready for a mortgage. It’s a good idea to start by getting a clear idea of your current expenses and paying off smaller debts. You may also want to consider a 15 or 20-year loan if you think you can sustain it, as it saves you money overall.
If you already have a mortgage, the best thing you can do is make sure you take good care of your investment. Have a schedule for regular home maintenance tasks and do not neglect them, no matter how new your house is.
You may feel like you're stuck in a rut with your career with no way out. Fortunately, the answer could be as easy as investing in your education by earning an MBA. The degree can lead to a salary increase, new career paths, and a financial peace of mind for your family. The degree doesn't have to take over your life if you're careful to select a program that offers ample flexibility, such as few to no assignment deadlines. You'll reignite your own passion for learning and set a great example for your family as well.
If you don’t have health insurance, get it. Not having any health insurance could be catastrophic for you and your family. If you do have health insurance, you may want to consider whether there are any supplemental plans you could benefit from. For instance, parents with growing children may want to invest in dental insurance to cover their orthodontic care.
Healthcare is an area where financial planning intersects with lifestyle since the best way to save money is to not get sick. While this is not always possible, the choices you make in terms of diet, exercise, sleep, and mental health will go a long way toward achieving this. Also, research has shown that just following your doctor’s recommendations for diet and medication can save you up to $2,000 a year alone.
Taking the step into financial planning is not as daunting as it seems. It’s all about a shift in perspective: instead of thinking of your life month-to-month, or even year-to-year, you need to start thinking about the next few decades. The time will pass before you know it, and you will be thankful for the work you put in. Do your research, stay organized, and save as much as you can. By simply doing this, you will already be doing yourself a favor in the years to come.
Countless US citizens are struggling with the unpredictability of the current economy. The COVID-19 pandemic has put moderate to low income individuals into a precarious financial position, making it difficult to keep up with daily expenses, pay debts, and save up for future endeavors. In such a tumultuous time, it might seem counterintuitive to start investing. But this isn’t entirely true. Though investing always carries some form of risk, remember that these risks come in varying degrees. And there are several options that offer minimal potential losses. Here are four examples:
1. Certificates of Deposit
A Certificate of Deposit (CD) is a fixed-term loan that you offer to your bank. You let them keep a specified amount of your money and, in return, they pay you back with a guaranteed rate of interest after several years. The longer the term, the more interest the loan yields. CDs are a popular choice because they offer higher interest rates compared to a regular savings account. Plus, they’re insured by the FDIC and NCUA (for credit union accounts), so there’s very little margin for loss. The only downside is you aren’t allowed to withdraw from the amount you loaned, or you’ll be penalized.
2. Bond Funds
Bond funds are another type of fixed-term loan. This time, it’s to your government. The two main types are US Treasury bonds and municipal bonds. US Treasury bonds are issued by the federal government, and terms can span from one year to ten. The short-term loans are safer to invest in because while these bonds are backed by the US government, your funds can still fluctuate in value. Just note that the Treasury rates tend to rise during times of economic instability. As of late, bond prices have been falling while the yields have climbed. For municipal bond funds, these are invested in state and local governments. Whiles these bonds are not as reliable as U.S. Treasury Bonds, one upside is that the interest is exempt from federal tax. Some options are also exempt from state and local taxes.
3. Money Market Funds
Money market funds are another ideal option as they offer very short-term investments where professionals actively manage your funds. Though this type of investment isn’t backed by the government, money market funds always aim to maintain a $1 net asset value (NAV). This protects investors from losing principal investments. But note that while the $1 NAV rule applies, it cannot always be followed, especially when the money market can’t adapt to inflation rates or interest rates become low. When funds go below your initial investment, the losses are passed onto you.
Gold is an ideal investment option because interest rates cannot influence its price. Neither is it affected in times of economic and political uncertainty. And there are multiple ways to invest in it. You could acquire physical items such as coins, jewelry, and even bullions. Or, you could invest in gold without having to physically own it. Exchange-traded funds (ETFs) are a good example of this. Gold ETFs are convenient because you won’t need to go through the hassle of ensuring the gold you buy is legitimate and stored properly, and there are plenty of trusted ETFs you can consider. Another option is to purchase gold-related stocks, which funds companies directly connected to the gold industry, such as miners and refiners. Just be wary of the current state of the stock market.
Those are four safe investment options for you to choose from. Many young individuals have flocked to online investment platforms to place their bets on the stock market. However, frequent trading is not recommended, especially given the country’s current economic and political climate. We recommend investing in at least one of the four items on our list before delving into riskier investment options.