It’s just a few days until April 15- are your freaking out?
The individual tax deadline is the straw that broke the camel’s back for many consumers. As if personal finances wasn’t already difficult- now I’ve got to get my taxes in?! Frustrating.
So, I’d like to thank the folks at Earnest.com for provided a great graphic that provides the content for this blog post. It’s a Cheat Sheet that is a Decade-By-Decade Look at Financial Health. Here are some of the great points made in their graphic. I can’t get it posted here, but I’d recommend that you contact the firm to get their graphic- great stuff!
New Personal Finance EBook in 2017: Get sample chapters here
Build an emergency fund (In your 20s)
Dave Ramsey makes this important point in his work: when we take on the difficult task of planning our finances, we “need a small win”. If you can get a small win, it builds confidence- and you’ll continue down that road.
Earnest recommends creating a $1,000 savings account for emergencies as soon as possible. If you don’t have a savings balance, you know how stressful it can be to cover an unexpected expense, such as a car repair.
Once you get to $1,000, try to build your account balance up to 3-6 months of your salary. That sounds like a big number, but you can do it over time. Give it a shot.
Review your insurance coverage (In your 30s)
As you start a career and move into your 30s, you start to accumulate some assets: a car, furniture and fixtures, a home. You need to give some thought to protecting those assets using insurance. Some insurance needs, such as life insurance, are an obvious need. Others are less apparent.
I’ve written on prior blogs about flood insurance. Most people think that flooding is covered in a homeowner policy, but this coverage is not included in most homeowner policies. Check with your insurance agent, if you’re not sure. In additional to your existing homeowner policy, you may be able to secure coverage through FEMA’s National Flood Insurance Program.
Understand the impact of compounding interest (In your 30s)
Compounding interest refers to earning interest on both your original interest and prior interest earned. You can think of it as earning “interest on interest”, and it’s like magic. You total rate of return on an investment will be much higher, if you compound your earnings.
As I wrote in this blog post, if you can save and invest just alittle more each month, the return over 10 to 20 years can be enormous.
Compounding works in your favor if you’re an investor- and it works against you as a debtor. The faster you can pay down debt, the less principal you’ll owe- and the less interest you’ll owe. Prioritize your debts and pay down those loans/ credit card balances with the highest interest rates first. This strategy will lower your total debt over time.
Face your retirement plan (In your 50s)
I loved this title: face facts. Be intellectually honest with yourself about how much money you’ve accumulated and a realistic rate of return on those dollars. As an example, the Standard and Poor’s Index of 500 large stocks has averaged a rate of return of 7-8% per year.
You may need to retire later than you’re planned, which is not ideal- but it’s better than not being honest about your financial situation.
Give these ideas some thought. As always, this is for educational purposes only. Work with your CPA and investment advisor on the details.
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(website and blog) http://www.accountingaccidentally.com/
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Image: Frustration, Jason Bolonski, (CC by 2.0)