Has the pandemic led you to think more about how you manage your finances? If you’ve been recently thinking about long-term financial security, this article might help.
As advised by CNBC’s personal finance journalist, Carla Fried, here are seven key steps to focus on to help you to work your way towards long-term financial security:
Step 1: Set short-term and long-term goals
Think about what would make you feel great money-wise. Next, list down your goals before deciding whether they fit into the short- or long-term.
Short-term goals
This could fall under plans that you can reach in a few months or by next year. Consider putting in place an emergency fund that can cover at least three months of your current living expenses.
Long-term goals
Do you find your salary gone up in smoke after a few days from payday? Time to look into saving at least 10% of gross salary every year for your retirement.
Step 2: Create a budget
Set a budget and stick to it. A budget exists to lay everything out in front of you so you can see for yourself the ins and outs of your balance. If needed, make little changes to help you stay on track to meet your goals.
Step 3: Build an emergency fund
We briefly mentioned this in step one – it’s good to have at least three months’ worth of living expenses saved in your emergency fund. With that said, of course, the more the merrier. If you can afford three, see if you can save up for six months and beyond.
Step 4: Pay off costly credit card debt
This applies to you if you have credit card debts to pay off. You don’t want to let the interest rates roll by delaying repayment of what’s due.
Step 5: Save for retirement
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As stated earlier in step one, it’s right that you start saving for retirement. If you’re the sort that rides on ‘YOLO’, think again.
The writer suggests these steps to take at different life stages:
IN YOUR 20s:
Start saving at least 10% of your gross salary ASAP.
IN YOUR 30s:
Aim to contribute 15% of your gross salary.
IN YOUR 40s:
Having at least two to three times your annual salary saved in retirement funds.
IN YOUR 50s:
By 50, you should have six times your salary saved. By age 55, have seven times your salary saved.
IN YOUR 60s:
By age 60, have eight times your salary saved. By age 67, have 10 times your salary saved.
Step 6: Invest for retirement with a long-term focus
Your body won’t be able to keep up with the work when you’re old. Investment is the way to go for a comfortable retirement. Time to look into stocks and/or bonds to reap the benefits 10 years down the road.
Step 7: Borrow smart
To borrow smart, you will need to identify your true needs from wants. Do you really need to get a loan to buy that new car? Or would it be better if you settle for a second-hand vehicle? Or do you even need one in the first place? Ponder over these things.