There is no skill more important than being able to manage your money. Regardless of your current financial state, you should know where your money is coming from and where it will be going over the next five years. When you have a long-term plan for your money, you will suffer less stress due to money.
Take Care Of Your Debt First
Your first goal should be to get your debt level down to 30 percent of your total monthly income. This allows you to improve your credit score by hundreds of points. When you are ready to buy a house or refinance your current auto or home loan in the future, having good credit will make it easier to do. If you want a quick jump to your credit score, you should consider paying off your credit card debt before any other loans.
Allocate Money For Saving
The next step is to allocate a certain amount of your income to savings. Those who are paying down debt at the moment may not be able to allocate as much now as they can in the future. Fortunately, anything that you put in your savings account is going to help you survive in the long run. Your goal should be to build up an emergency fund that will last you for up to six months.
How Will You Save For Retirement?
It is never too early or too late to think about retirement and how you will save for it. Whether you are 25 or 55, it is always a good idea to put as much of your money into a retirement account as possible. Workers under the age of 55 can put up to $5,000 in an IRA and up to $17,500 into a 401k account. Those numbers increase if you run your own company. This is because you can contribute as an employee and as an employer up to $49,000 a year. Workers over the age of 55 can contribute up to $6,000 a year into an IRA.
Do You Have Insurance?
Over the next five years, you will need to make a plan as to how you buy insurance to protect yourself. In 2014, it will be illegal to not have health insurance. In addition to health insurance, you may want to consider purchasing a life insurance policy as well. If you were to get sick or die, your insurance policies would help cover your living expenses as well as future expenses that your spouse and children may need help paying for.
You Need A Rainy Day Fund As Well
Finally, you need to put aside some money that you can spend as you wish. A discretionary fund is different from an emergency fund because it is the money that you will use to take a vacation, pay for a wedding or help you buy that new car that you always wanted. Having money already set aside for that purpose after you have taken care of your other financial needs allows you to splurge without ruining your financial plan.
Your financial situation may look bleak at the moment. The good news is that you can turn things around quickly with some good long-term planning. If your financial situation looks good, it is still a good idea to create and stick to a long-term plan for that money. When you know where your money is going, it makes it easier to make financial decisions without giving them a second thought.
Brenda Panin is a finance blogger interested in insurance and mortgage. In her free time she loves to write about personal finance. Useful information for this article has been kindly provided by Freedom Loans.
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