Secure Your Financial Future With These 3 Steps
Life often seems like a mystery and while you may not ever figure it all out, you can make sense of your financial future. In order to do so, you’ll have to take a few steps to ensure you’ve covered all your bases. When you take the guesswork out of that, all the other pieces of the puzzle will fall into place.
1. Protection Planning
The first step in securing your future is protection planning. This lays the foundation for every other move you make. It’s never too early to prepare the right legal documents when in this phase.
- A last will and testament is a must. It simply states where you wish your assets to go. If you have children under the age of 18 it gives you the power to appoint their legal guardian in case of tragedy. When you skip this step, you leave your affairs intestate…basically giving the government right to make those decisions for you.
- The next important document in this phase is power of attorney (POA). There are two major types of POA to address, durable and healthcare. Durable gives someone the legal power to act for you financially and healthcare is necessary when you become incapacitated to the point where you can no longer make the essential decisions for your own care. (For related reading, see: Power of Attorney: Do You Need One?
- While it may not always seem like a necessity, insurance is without a doubt a must. Almost all areas of your life need coverage for the catastrophic events that everyone hopes they’ll never be faced with. Determining the right types and amounts of life, home, health, auto, etc. will keep your family moving forward in the worst-case scenario.
- Finally, the last initiative to take when in this phase is the accumulation of an emergency fund. If both you and your spouse work, three months of wages should help you cover most calamities. However, if you’re the primary breadwinner, a six-month umbrella will better shield you.
2. The Accumulation Phase
After you’ve completed this phase, you’ll move into the accumulation phase. There are two primary objectives in this chapter of your life.
- Paying down/off debt
- Building investment assets
Typically the biggest investment made during this phase is buying a home. Following the initial purchase, you’ll set a plan in motion to pay off your mortgage as quickly as possible. During this time, you’ll also begin investing for retirement. If you’re a business owner, you may expand your business. The key is to establish a sustainable income for the latter end of your life. The secret to doing so is minimizing debt and your tax burdens. Meeting with a certified financial planner to do so will help you defeat the enemy of building assets—debt.
3. Distribution Planning
The final phase is distribution planning. This is where the rubber meets the road and you begin your journey of retirement. Your income will flow from the financial portfolio you’ve built in the previous two phases. At this time you may want to revisit some of those legal documents you laid out in the initial stage to get your estate planning on the right path. Perhaps your kids are grown and you even have a few grandkids, so it’s time to implement a trust.