You already know the most basic principle of personal finance—spend less money than you make. Once you’ve got that covered, however, figuring out how to achieve all your financial goals at once can feel overwhelming.
Is life insurance the most important financial goal, or do other tasks come first? Should you direct any extra cash toward paying off your student loans or saving for retirement? Building an emergency fund or chipping away at credit card debt?
As you grow your family and advance in your career, there may be even more competing goals, such as buying a house, saving for your kids’ college education or taking a dream vacation. In general, this is how you might think of prioritization for your financial goals, from the most to the least important. (Of course, the more complicated your finances, the more you’ll benefit from working with a financial planner who can help you navigate your specific situation.)
Before working on almost any other long-term financial goals, you’ll probably want to make sure you and your loved ones have at least some protection against the unknown. This takes two main forms: life insurance and an emergency fund.
Even without a tremendous amount of savings, you can look after your loved ones with a life insurance policy. With term life insurance, you pay monthly premiums in exchange for a promise that the insurer will provide a cash payment to your loved ones if you were to pass away while the policy is active. Term life insurance is often the most affordable type of life insurance, as it covers you for a specific period of time, called a term, often ranging from a 10-year to a 30-year term.
This is a key way to provide for your family; many people consider life insurance when they become parents or if they have other financial dependents such as aging parents. A policy might be surprisingly inexpensive, as well. For example, with a life insurance quote from Fabric, a 30-year-old woman in Texas would pay only $24.78 a month for $500,000 in coverage over 20 years, if she doesn’t smoke and is in excellent health.
Next, you’ll likely want to have at least three to six months’ worth of expenses in a liquid account that you can access in case of emergencies.
Emergency funds are especially important during a global pandemic or other times of widespread financial distress.
“An emergency fund gives you the ability to stay on track no matter what your other goals are,” says Rich Ramassini, a Certified Financial Planner and senior vice president at PNC Investments. This is true even if you have credit card debt. “Let’s say you want to aggressively pay down your credit cards, but your car breaks down and you need a $2,000 repair. If you don’t have an emergency fund, guess where that money is coming from?”
Bonus: Rising interest rates mean that you save money in an online savings account and it should earn at least a small return.
Even if you just put aside a small amount to retirement each month, working on this long-term financial goal is an important habit to start. Money you save for retirement when you’re young is particularly valuable, given that it has a lot more time to grow.
“The longer you have to save, the longer the time horizon for growth of your investments,” says says Lisa Hutter, senior director of wealth planning for Wells Fargo Private Bank. “Starting with a small amount will make a big difference in the long term. It also gets you psychologically prepared and comfortable with allocating that portion of your income to savings.”
Directing your retirement savings into a tax-advantaged account such as a 401(k) or an IRA could mean long-term tax savings. And if your company offers a match on 401(k) contributions, you’ll benefit from contributing at least enough to get that match.
Companies typically offer a 50 to 100 percent match on investments, which is a guaranteed return you’ll never find on any other investment.
Regardless, because retirement will be the largest and arguably most important of your long-term financial goals, it makes sense to get started investing at least a small amount as soon as possible, whether your company provides a match or not.
Credit card debt can be a huge drag on both your ability to access current cash flow and your chances of achieving your long-term financial goals. Credit card rates are on the rise, with the average issuer charging nearly 17 percent in July 2018 on consumer credit card balances.
Paying off your credit card debt should be one of your financial priorities because it could save you quite a bit of money, especially when factoring in interest. It will be an instant help to your cash flow, likely higher than any return you’ll find via other investments.
On our list, debt repayment comes after retirement because you should still continue to put a small amount of savings toward retirement to give your investments a chance to grow and to get into the habit of saving, according to Kevin Avent, a Certified Financial Planner and managing director of wealth management at Unified Trust Company.
“Retirement is permanent for everyone and credit card debt is theoretically—and hopefully—temporary,” he says.
If you find it emotionally difficult to deal with your debt, you might consider the “snowball method” of debt repayment, which prioritizes small, easy wins to help you get started. Otherwise, the most efficient way to go is to start by paying down the credit card with the highest interest rate first, while continuing to meet your minimums on all other cards. Once you’ve paid off the highest-interest debt, start working on the card with the next-highest rate. If you have good credit, you may be able to transfer some or all of your credit card debt onto a card with a zero percent introductory rate. Then you can focus on paying down that balance as much as possible before the introductory rate expires.
Note that this is another area where life insurance might come into play if you’re concerned about leaving debts behind for your loved ones. If your family co-signed on your loans (such as your parents guaranteeing your student loans, or a spouse who is a joint account holder on your credit cards), they could be responsible for your debts even if you were to pass away. If you wanted to make sure that they wouldn’t be left dealing with your loans in your absence, you might look into a life insurance policy to cover the cost of your debts. (Here’s how to think about how much life insurance you need.)
Getting a handle on your debt before making such purchases will not only improve your cash flow and allow you to put more money toward a down payment (reducing your debt later on), but it will also potentially make you a more attractive borrower to lenders.
“Sometimes it’s harder to get a mortgage if you have a large amount of outstanding credit card debt and payments,” Hutter says. “It’s going to speak to how much you’re able to afford.”
Figure out how much money you’ll need for the short-term financial goal you have your eye on, and see whether there are areas of your budget that you might be able to cut in order to save more.
Setting up a dedicated account with automated deposits can make it easier to save regularly, as it reduces the temptation to use those funds for other things.
While regularly socking away even a small amount can make a difference for retirement, your long-term financial goal should be to put 10 to 15 percent of your income away for your golden years.
Ideally, aim to raise the amount you’re saving for retirement over time. An easy way to do that is to take advantage of auto-escalation features offered in many 401(k) plans, which will automatically increase the percentage you’re saving by a set amount each year.
Additionally, consider increasing your contributions every time you get a raise. If you don’t have access to a 401(k), putting money into an IRA is a good way to get started.
If you’re saving enough to hit the annual contribution limits on any of these special retirement accounts, you could look for a taxable investment account with low fees and affordable fund options to continue saving further, until you’re on track with your retirement goals.
A financial planner can help you figure out those goals, but you can get a rough estimate with a retirement calculator.
Helping your children pay for college is a laudable aim, but it should come after you’ve met the rest of your financial goals—including making sure you’re on track for retirement. That’s because there are plenty of ways for your children to borrow money to pay for college, but it’s not possible to borrow money for retirement.
“Children are young and have their entire lives to repay their loans and save for retirement,” Avent says. “However, parents don’t have that luxury.”
If you’re on track with retirement saving, the best way to save for college is usually a 529 account. Money in a 529 will grow tax-free and withdrawals will be tax-free as long as they’re used for qualified education expenses. Many states also offer a tax incentive for contributions to a 529.
While juggling multiple responsibilities at once can feel overwhelming, prioritization is the first step toward achieving goals. From prioritizing life insurance to building a nest egg or repaying debts, there’s no one right or wrong answer to where to spend your efforts. While you may have to adjust your plan as your financial situation changes, remaining true to your priorities should lead to long-term success and stability.
Fabric exists to help young families master their money. Our articles abide by strict editorial standards.
This material is designed to provide general information on the subjects covered. It is not, however, intended to provide specific financial advice or to serve as the basis for any decisions. Fabric Insurance Agency, LLC offers a mobile experience for people on-the-go who want an easy and fast way to purchase life insurance.
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Accidental Death Insurance policies (Form VL-ADH1 with state variations where applicable) and Term Life Insurance policies (Form ICC16-VLT, ICC19-VLT2, and CMP 0501 with state variations where applicable) are issued by Vantis Life Insurance Company (Vantis Life), Windsor, CT (all states except NY), and by The Penn Insurance and Annuity Company of New York (NY only). Coverage may not be available in all states. Issuance of coverage for Term Life Insurance is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Policy obligations are the sole responsibility of Vantis Life.
All sample pricing is based on a 25-year old F in Excellent health for the coverage amount shown. All samples are for a 10-year term policy, unless otherwise stated. Term Life Insurance policies (Form ICC16-VLT, ICC19-VLT2, and CMP 0501 with state variations where applicable) are issued by Vantis Life Insurance Company (Vantis Life), Windsor, CT. Coverage may not be available in all states. Issuance of coverage for Term Life Insurance is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Policy obligations are the sole responsibility of Vantis Life.
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