Retirement and estate planning may seem like a distant concept for those in their 20s and 30s, but it’s never too early to start. In fact, the earlier you start, the better prepared you’ll be when the time comes. With that being said, here are some financial concepts that can help everyone have long-term success, regardless of their age!
One of the biggest purchases you’ll make in your lifetime is buying a home. It’s important to keep in mind that owning a home involves more than just mortgage payments. Property taxes, insurance, repairs, and maintenance all add up. It’s essential to see how these expenses fit into your spending plan before deciding to buy a home. Don’t forget that you’ll need to save for a down payment, closing costs, and moving expenses as well.
Insurance is another critical aspect of retirement and estate planning. Make sure you have enough insurance coverage for yourself and your family. Medical health insurance, disability insurance, and life insurance are all options you should consider. In the event of an unexpected illness, injury, or death, having adequate insurance will provide financial security for you and your loved ones when you need it most!
Take a look at your financial documents and consider digitizing them as a crucial part of retirement and estate planning. Storing these documents as PDFs and keeping them well-organized in a secure location ensures quick access whenever it’s needed. These documents may include tax returns, investment records, insurance policies, powers of attorney, estate plans, and a list of important contacts, amongst many other things. Also, don’t forget to tell your loved ones where and how they can access this information if the need arises.
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Along with buying a home, there may be other significant purchases you want to make in the future. Whether it’s a new car, a dream vacation, or even your financial freedom, it’s important to start saving for big purchases early on. Barclays suggests setting savings goals and creating a plan to achieve them. To do that, consider living more frugally and increasing your income, both of which will accelerate your savings!
Thinking about death is not a pleasant subject, but it is crucial to plan for the inevitable. It is essential to designate what should happen to your home and belongings after your death. Creating a will or trust and updating it regularly is important to make sure your loved ones know your wishes, and where to find critical documents. If you don’t have a plan in place, chances are your belongings and possessions could get dragged through a lengthy probate process. On top of being time consuming, probate is also public which may expose your nest egg to unnecessary liability!
Another key aspect of retirement and estate planning is creating a budget. A budget will help you live within your means, spend on the things that are important to you, and avoid debt.
Start by tracking your expenses and income. Then, set financial goals and create a plan to achieve them. Don’t forget to include key budget categories like healthcare costs and fun money in your retirement budget, too.
Along with creating a budget, taking steps to boost your income can help you achieve your financial goals faster. Consider asking for a raise or promotion at work, taking on a side hustle, or investing in stocks or real estate to generate mailbox money. A higher income will not only help you save more for the future but it also improves your financial wellbeing in the present.
As you can tell, financial planning for retirement is crucial. Make sure you’re contributing to a retirement account such as a 401(k) or IRA. Take advantage of any employer matches and consider increasing your contributions over time. It’s also important to diversify your investments and regularly review and adjust your portfolio.
When planning for retirement, it’s also important to consider your decumulation strategy. How will you use the assets you’ve accumulated to generate income to pay your monthly expenses? Will you sell a percentage of your stocks? Live off rental income? Work part-time? Regardless, determining this now can help you figure out how you should start investing for your future!
The power of compounding is one of the most influential financial concepts everyone should grasp early in life. When you start saving and investing in your 20s and 30s, it reduces the actual amount you need to set aside throughout your lifetime, as the money has more years to multiply and work for you. Each year, not only does your initial investment earn a return, but the accumulated earnings from previous years also earn a return. Over long periods, this effect magnifies, leading to exponential growth in your investments. Simply put, the earlier you start, the more time your money has to compound, enabling you to harness the full might of this financial phenomenon!
Planning for retirement and estate may seem overwhelming, but it’s crucial to start early. Tasks such as buying a home, having enough insurance, and digitizing financial documents, among others, are all essential aspects of the process. Regardless of your age or financial position, it’s never too early to start planning for the future!
Tightwad Todd helps busy professionals create better habits with their money and achieve their goals faster! Contact us today to learn how we can help you.
-Written by Chelsea Lamb of businesspop.net
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