Financial Planning 101

Having a solid financial plan isn't as hard as you might think. Here are a few basic ideas to get you started.

Develop a financial reserve

Being prepared for unexpected expenses can help relieve financial anxiety. Ideally, you should aim to set aside 4 to 6 months of living expenses. Make it easy by setting up an automatic, recurring transfer to your savings account. The fund will grow, and you may not even miss what you save each month.

Get rid of high-interest-rate credit card debt

If you're carrying balances and paying interest on your credit card each month, try to cut down on your card use and pay more than the monthly minimum. Finding a different credit card with a lower interest rate can also greatly help the time it takes to pay off your balance.

Develop a household budget

Think of a budget as creating awareness of where your money is spent—not as a punishment. Understanding how you spend your money can help you see how to save it. Online banking tools make it easy to categorize and total monthly spending, and can even help you create and stick to budget goals.

Saving for retirement

Your retirement lifestyle depends on decisions you make before retiring. Take full advantage of your 401(k) or other workplace retirement plan. Participate in the plan by contributing as much as you can—try to get to any available employer match. Also, consider contributions to a traditional or Roth IRA.

Be sensitive to taxes

No one likes to pay more income tax than necessary. Keep good records of potential deductions like mortgage interest, state and local taxes, charitable contributions, and certain medical expenses. You may also be able to take advantage of tax deferral or preferential tax treatments on your investments. Consider using tools like TurboTax® to make filing your taxes as quick, easy and accurate as possible.

Have a sensible investment strategy

Start with a goal that divides your investments into equity, fixed income and cash investment categories based on the age you plan to retire and your risk tolerance. If you're younger and more comfortable with risk, placing a larger portion of your funds into equities may help you earn the higher returns that stocks have historically received. However, remember all investments involve risk, and past performance is no guarantee of future results.

Be adequately protected

Insurance provides protection against the unknown. Make sure your possessions, life and health are adequately insured. Review the deductibles and the coverage amounts to get the protection you need at the lowest cost. Consider an umbrella liability policy for additional coverage above what is provided in your homeowner and auto policies.

Take care of estate planning

A well-thought-out estate plan determines how your assets will be distributed and can reduce estate taxes. You should also designate a durable power of attorney to make financial or healthcare decisions, in the event you're incapable of making them yourself.

Organize your records

Having a system for handling expenses and keeping organized records saves time and reduces stress.

Interested in different investment options?

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