6 Major Financial Steps of Your Life
Handling the Major Financial Milestones in Your Life
Most of your major life events will have a direct impact on your finances and financial decisions, so it's important to be prepared. Whether you are getting married, buying your first home, or starting a new job, you need to know how these events will affect your financial picture. You can continue to make great financial decisions, but you may need to adjust your current spending habits to reach your new goals. Creating a solid financial plan will make it possible to navigate these steps without the financial stress you may otherwise feel. There's no ideal order to complete these steps, but careful planning can help you prepare no matter what your timeline.
While it is thrilling to begin planning and preparing for a wedding, keep in mind that after the wedding, you and your spouse will begin your financial life together. Money is one of the most difficult topics to deal with in a marriage, and it is important to address it from the very beginning of your marriage because this will help you and your spouse work towards the same goals. Working together can help you achieve your goals, and open communication about your finances will help your marriage be successful. If you are having a hard time compromising, consider taking a budgeting class together or go to counseling to try to work on these issues.
Once you begin to settle down in the working world, you should get serious about getting out of debt and using your money wisely. Once you are debt-free, you can begin working towards accumulating wealth and achieving your financial dreams. If you have to continuously make debt payments, you are limiting what you can do with your money. Choosing to live debt-free is one of the best decisions you can make for building real wealth. A debt payment plan and a clear timeline can help you achieve this more quickly. You can choose to incorporate a debt snowball strategy—which involves paying down your smaller debts and gradually attacking larger debts—or, you can try the debt avalanche strategy, which involves paying down debts with higher interest rates first.
If and when you need a car, you should pay cash for your car, but if you can't, you need to shop around for the best auto loan options available. The interest rate you receive on this loan will largely depend on your credit score, and it is recommended to have above a 660 to receive the best rate. A few percentage points may not seem like much, but when you apply it to thousands of dollars, it can add up to a sizeable amount.
Purchasing your first home is a huge achievement, as well as a big decision and commitment—you need to be sure that you are ready. If you are working on this goal, your first focus should be saving up for a down payment. The rule of thumb is that you should save 20% for a down payment, although you can buy a home with 3.5% down using a Federal Housing Administration loan.
When deciding to purchase a home, one of the most important things you can do is make sure you fully understand the terms of your mortgage. Most mortgages are 15- or 30-year mortgages, although some may go up to 40 years, and the interest rate you receive will largely depend on your credit score. A credit score of 620–639 could land you a rate of around 4.9%, while a score above 760 could get you a rate around 3.3%.
Along with the monthly mortgage payment, it is also important to consider the additional cost of homeowners insurance, homeowners association fees, and property taxes. If you live in Hawaii, the property tax may not be too much of a burden at 0.27%, but if you live in a place like New Jersey where the rate is 2.44%, this makes a considerable difference.
After a few years in the workforce, you may be ready to move on to a new career. You can look for promotions inside your company, or you can look elsewhere to find a higher salary and more lucrative benefits. This is an important step. You want your income to continue to grow, and making a move at the right time is part of that. You should make sure that you are prepared to make the changes a new job may require. You may need to pay for additional certifications, move to a different city (and pay for moving expenses), and adjust to differences in cost-of-living.
You will likely have fixed-income in retirement, so it's important that you invest your money to maximize your savings. Investing is essential if you want to live comfortably and not worry about finances in your later years, and it can also help you pay for life events—like college and wedding costs. Investing can be intimidating if you're just beginning, but if you find a good financial planner, they can explain everything to you in detail and handle most of the decision-making.
Before investing, it's important to know your risk tolerance. Stocks are considered riskier investments, but they offer a greater chance at higher returns. Bonds are safer investments, but their returns are much smaller. Consider mixing up stocks and bonds in your portfolio to hedge some of the risks. Young investors can take more risk because they have longer to recover if something bad happens in the market. As you get older, you should have less risky investments in your portfolio to help protect your money from downturns in the market as you approach retirement.