Creating long-term goals is a crucial part of any financial plan. However, too many people set themselves up to fail by making vague or unrealistic goals, when really, they need to be direct and specific. Here, we’ll look at a few examples of essential long-term financial goals that can act as achievable benchmarks on your road to financial stability.
If you need assistance with your finances, work with a professional financial advisor from Good Life Financial Advisors of Mt. Pleasant. We’re ready to help create a personalized plan for your specific needs.
Eliminate All Credit Card Debt
Few financial forces are more destructive than credit card debt. The average American household with a credit card carries a balance of more than $8000 month-to-month, and credit card interest rates are often as high as 25%. If you have credit card debt, you need to take care of that before thinking about investing or saving for real estate. Keep in mind, though, that not all debt is bad—student loans and mortgages make other financial goals more achievable. However, unlike these other kinds of debt, credit card debt slowly eats at your income like a sickness.
The quickest way to crush credit card debt is to increase your income. You can do this through a side gig or part-time job. But, if you can’t increase your income, you’ll need to decrease spending and cut down on the credit card interest rate with a manageable personal loan.
Put One Month of Expenses Into Savings
The rule of thumb for emergency savings is three months of expenses. But three months of expenses can be a daunting task, especially if you have high rent or mortgage payments. If you’re not a big saver, trying to save three months of expenses quickly is like trying to hit a grand slam with no one on base.
Instead, set a savings goal of one month of expenses. Once you hit one month of savings, reset and save for another month of expenses (and so on). After saving three months of expenses, you can move on to other goals.
Open a 401(k) Account
Saving for retirement is the most important goal for many Americans, but getting started is the toughest step. One of the easiest ways to start building your nest egg is through a 401(k) account with your current employer. A 401(k) takes money out of your paycheck each week before taxes and places it into an investment account. By building retirement savings in a 401(k), you’ll avoid paying taxes until you’re retired—and in a lower tax bracket.
Open a Roth IRA If You Have a 401(k)
A 401(k) isn’t the only way to save for retirement in a tax-advantaged account. A traditional IRA functions much like a 401(k) when it comes to taxes, but a Roth IRA combined with a 401(k) provides a unique advantage.
Unlike a 401(k) or traditional IRA, a Roth IRA is funded with post-tax dollars. However, investment gains in a Roth IRA grow tax-free, and your principal can be withdrawn at any time. By mixing a Roth IRA with a 401(k), you can divide your investments into different accounts based on tax efficiency. If you’re self-employed, you can combine a Roth IRA with a SEP IRA for even more tax-advantaged investing.
Save to Avoid Private Mortgage Insurance
Real estate is a great way to diversify away from the stock market, but owning a home can be an expensive endeavor. To make a home purchase a worthwhile investment, you’ll need to save for a down payment. Using a high-interest savings account or FDIC-insured vehicle like a certificate of deposit is a good way to save without taking on any risk, but you’ll want to save enough to avoid private mortgage insurance.
Private mortgage insurance (PMI) is required when you purchase a home with a conventional loan with less than 20% down. Since you have less than 20% equity in the home, the mortgage lender requires extra insurance to protect themselves. If you can’t get a decent loan without PMI, you’ll need to save enough for that 20% down payment.
Work With an Experienced Financial Advisor
We hope these examples of essential long-term financial goals help you start planning for your future. If you need assistance creating and working towards financial goals that fit your needs, contact the team at Good Life Financial Advisors of Mount Pleasant today for assistance.