Summer is a time to relax, recharge, and move financial worries down on the list of priorities. But now that summer’s ending, it’s a great time to get finances in order — especially in uncertain economic times. For those wondering where to start, read on to find out five financial steps people can take to dial in their finances this September.
1. Make a budget
First, sketch out a budget to keep track of every expense. People should list their total income and then categorize their spending. They can choose from several budgeting methods, such as the traditional income-and-expenses budget, 50/30/20, zero-based budgeting, and more. Doing this can help people spend less than they make to avoid debt. Additionally, it can help them set savings goals and find areas where they can cut spending.
2. Contribute to a retirement plan
Retirement plans help people set aside money for their retirement in the future through saving and investments. In addition, many plans offer tax advantages to help maximize savings. For example, for people with a workplace plan, such as a 401(k), contributions are pre-tax and taken right out of their paychecks. Someone’s employer may also offer a company match up to a certain percentage — this is free money, so it is ideal to contribute up to this number at a minimum.
After that, look into Individual Retirement Accounts (IRAs). People can open an IRA outside of work with a financial institution, such as a brokerage. There are two kinds:
- Traditional IRAs: Contributions are tax-deductible, but retirement distributions are taxed as ordinary income.
- Roth IRAs: Contributions are not tax-deductible, but retirement distributions are tax-free.
Speaking with a financial advisor is recommended to see which account type is best for their needs.
3. Get a life insurance policy
Now is a great time for people to make sure loved ones are taken care of if they pass away unexpectedly. That’s what life insurance is for. If the policyholder passes away while their life insurance policy is in force, the insurer pays beneficiaries a significant death benefit to replace their income and pay off any debts they leave behind. According to LIMRA’s 2022 Life Insurance Barometer Study, 68% of people who own life insurance feel financially secure, compared to only 47% of non-owners.
Term life insurance is an affordable option with substantial coverage. It lasts 10 to 30 years, meaning it can expire, but premiums are low. Permanent life insurance can come with higher premiums, but the policyholder can lock in coverage for life. Plus, they can get a cash value growth component that builds with each premium payment. It grows tax-deferred at a certain rate that depends on the permanent policy type.
Once the cash value grows enough, the policyholder can withdraw from it or borrow against it with highly favorable terms. If they ever cancel their policy, they can get the full cash value back minus surrender charges.
Potential policyholders can get life insurance quotes online for affordable and accessible policies from Fidelity Life. Fidelity Life offers term life, whole life, final expense, and a wide range of other policies to help people give their loved ones the financial protection they need.
4. Build up an emergency fund
An emergency fund is a savings account for events like job loss, unexpected medical bills, or emergency travel. Typically, people should aim to save three to six months of expenses. For those with a larger family, aim for the upper end since this will help build up enough to cover expenses for everyone in case of an emergency.
Consider keeping the emergency fund money in a high-yield savings account. These pay more interest than a regular savings account, helping emergency savings keep pace with inflation when not used.
5. Pay down debt
The interest people pay on debt is essentially “wasted money.” Paying off high-interest debt as quicklyas possible can help people achieve better financial positions. People can consider starting with credit cards debt since these often charge higher rates. Once the credit cards are paid off, go after personal loans.
After that, people can consider any auto loans or even their mortgage. But keep in mind that these loans tend to be large and can come with lower interest rates. So for many, making the regular payments on these and investing the money saved on the high-interest debt they paid off makes sense.
Get ahead financially this fall
The end of summer is a great time for people to dial in their finances — especially in uncertain economic times such as these. Start by making a budget and regularly contributing to retirement plans. From there, look for a life insurance policy that offers sufficient coverage at an affordable rate by shopping around.
After that, build up an emergency fund and pay down high-interest debt to free up more income. Following these tips will give people peace of mind, and they’ll know they’re more financially prepared for whatever lies ahead this fall.