Financial plans should be tailored to a person’s individual needs. However, there are certain things that can curtail the confusion that surrounds decisions about money and help people create a more solid financial footing, according to an article shared on the Fidelity.ca website.
Author Liz Weston shares guidelines for saving, borrowing, spending and protecting money that has been gleaned from almost three decades of writing about personal finance. Jason Hare, a certified financial planner in Kingston, agrees with her on the following six moves of financial preparation:
- Prioritize preparing for retirement
While ideally, people would begin saving starting with their first paychecks and keep saving until they retire, and they would not touch that money until retirement, that is not how many people have approached retirement.
“Even if you can’t save 15% of your pre-tax income for retirement, as recommended by Fidelity and other financial services firms, anything you put aside can help give you a more comfortable future,” according to the article.
- Start your rainy day fund ASAP and be creative
It can take years to effectively save the recommended three to six months of expenses that are recommended for rainy day funds.
“That’s too long to put off other priorities, like saving for retirement,” according to the article.
A beginning emergency fund of $500 can be a first goal and then you can prioritize building it up. Then, while actively saving, attempt to generate other sources of emergency cash, like space on credit cards or an unused home equity line of credit.
- View credit cards as a convenience
Credit cards can protect customers from disputes with merchants and fraud. However, credit card interest rates tend to be high, so it is important to not carry balances if they can be avoided. If you make a habit of paying your balances in full, seek out a rewards card with a sign-up bonus that returns at least 1.5% of what you spend.
- Be smart about how you finance your home
The best time for homeownership is when you’re financially prepared and in a position to stay put for a while. Sign on for a mortgage rate that’s fixed for as long as you plan on staying in the home. Also, don’t make extra payments against the principal until you are adequately preparing for retirement and have paid off all other debt.
“While some people believe that it is necessary to pay down the principal as soon as possible, and that should be a goal, it is also important to pay down other debt,” said Jason Hare.
- Buy used vehicles and drive them for years
Supply-chain issues have inflated the cost of both used and new cars, so purchasing a vehicle may not be the best idea right now. Still, general logic deems that buying a used car can save you a lot of money during your driving lifetime, while also driving a car for years before replacing it can as well. J.D. Power notes that many well-maintained vehicles can last around 200,000 miles without major issues. What this means is that you can get around 13 years of use out of your vehicle if you drive 15,000 miles per year.
“While it is best to pay cash for cars, if money needs to be borrowed, it is important to limit the term of the loan so you are not paying as much interest,” according to Hare.
- Use insurance to protect against catastrophic expenses
It is much easier to pay a smaller cost out of pocket than get hit by a massive, catastrophic expense. If you are in a good position with savings, it is worth considering raising the deductibles of your policies to save on premiums. A word of caution, though: be hesitant to sign-on for high-deductible health insurance as this could cause you to delay medical care. Particularly with regard to health, it is important to err on the side of health and safety.
