The Importance of Saving Money
When you turn 60 years old, would you rather be sitting beachside in a foreign country than working? People can begin unpenalized withdrawals from their IRA and 401k after turning 59.5 years old. Saving 20% of every paycheck will allow you to create both short-term and long-term savings.
Short-term saving goals might include buying a car, paying any loans or debts, and buying a house. Long-term saving goals, conversely, could include saving for retirement and your child's college education — not to mention an emergency fund for any unforeseen rainy-day events. A few dollars here and a few dollars there will add up in the long run.
Putting Together a Financial Plan
The 50-20-30 rule is the quintessential budgeting plan that utilizes post-tax income. Fifty percent of your income goes toward needs such as housing expenses, car payments, groceries, health care, and insurance. Twenty percent of your income goes toward saving in the form of stock market investments, saving for retirement, and that emergency fund. And lastly, 30% goes towards personal wants: that new guitar, a night out to enjoy yourself, new clothes, or even a weekend getaway. Following this budgeting plan will help you create a healthy balance between saving and spending.
Creating an Emergency Financial Plan
Financial emergencies occur for a variety of reasons. Job loss, large-scale natural disasters, and medical issues are often some of the main culprits that put people into financial distress every day.
Creating a plan that can weather financial emergencies should always involve reducing your manageable debts, creating an emergency financial plan and budget that cut out nonessentials, and reallocating investments to safer options. This plan should ultimately make daily life as affordable as possible to ensure that the monthly inflow of money will remain higher than the outflow.
Going into the new year is the perfect time to rebalance your investment portfolio. Stimulus and market support from The Federal Reserve System led to one of the greatest bull runs of all time across the stock market. The S&P 500 increased by nearly 50%, followed by the Dow Jones Industrial Average increasing 26%.
On top of that, certain sectors had strong performances, too. The top-performing sectors in 2021 were: energy, real estate, financial, and technology. The worst? Industrial, utilities, consumer staples, and communication services. Reevaluating the best sectors for your individual savings plan is a major part of seeing continuing returns and of smart investing as a whole.
Paying Down Debts
The last and most important step for strengthening your financial health is reducing debt. Borrowing money is an occasional crutch that we all need. Seventy-seven percent of households have some form of debt and the average American owes $90,460.
Credit card, medical, and student loan debt make up most of these figures. Reducing or eliminating the amount of money you owe will free up additional finances for budgeting and not only improve financial health, but be good for your mental health, too.
Staying financially stable is a difficult task, but there are ways to ease your monetary problems and bolster your budget. Save, pay down debts, and rebalance investments to keep your wallet full and bank account happy.
To find out more about strengthening your financial health in the new year, click here.