5 Financial Planning Tools Everyone Should Have By 35

5 Financial Planning Tools Everyone Should Have By 35

Turning 35 is a milestone birthday because it marks another epoch in your adult history. Now you are fully a decade past college, past being on mom and dad’s insurance, likely are married with kids, and likely own property and the car you are driving. Now fully into a new age bracket, it’s time to reflect on your financial goals: Where do you want to be in another 35 years when you are most likely retired? Will you have grown up kids by then and will you pay for their college education? Will you be debt-free and have your home paid off? These five financial planning tools everyone should have by 35 will help you track those goals and ensure that you are able to reach them.

2. Roth IRA

A Roth IRA is the creme-de-la-creme of retirement investment vehicles for working adults. You must fund your Roth IRA with post-tax earned income but it grows tax-free! Ideally, your income will grow over your lifetime and thus your earnings will be taxed at a higher rate as you age. That is the genius of the Roth IRA. You can pay taxes now at a lower rate on money you earn now, deposit it into a Roth IRA, watch it grow and grow, and take it out when you are a millionaire (ideally) at retirement and don’t have to pay any tax on that additional growth at your now likely higher tax rate. There are no required minimum distributions once you hit retirement age so you can let that money grow if you don’t need it right away. Hey, the more growth you can squeeze out of your initial investment the better since it’s tax free money when you take it out. For 2019, you can contribute up to $6,000 annually to your Roth IRA if you are under 50 and after age 50 that limit increases to $7,000.

2. Term Life Insurance

If something happened to you, how would your family survive financially? If you have anyone that relies on your income, whether your spouse or children, you need life insurance. Term life insurance is the cheapest way to support your family and replace your income for several years in the event of your untimely death. Term insurance insures you for a set amount of money over a set amount of years. Locking in a low rate when you are in your 30s, young, and in good health guarantees you coverage at that same low rate for the entire length of the term of 10, 20, or 30 years. It is cheaper than whole life policies because it does not build up cash value and costs less to administer, meaning you pay less upfront and don’t have to pay high fees. Whole life has you pay an arm and a leg to build up a type of savings account, but the return on that investment is usually quite poor. You are better off purchasing term life insurance and investing in a Roth IRA, 401k, or mutual funds to help your money grow.

3. Emergency Fund

Failure to plan is a plan to fail. And how appallingly true with your emergency fund savings account. According to a 2018 Federal Reserve Study, only 61% of Americans would be able to cover an unexpected $400 expense with cash, savings, or a credit card. And 27% would have to sell something to scrape together the cash. If you fall into the meager savings family and would have to sell something or slap down a credit card for an unexpected expense, you are not alone. But Americans’ lack of savings is a major contributing factor to our high levels of consumer debt. Focusing on setting aside 3-6 month’s worth of savings for emergencies is paramount, even to paying off debts. Without having money set aside, it is far too easy to wind up with a loan or increased credit card bill due to an unforeseen circumstance.

4. 401k

Like the Roth IRA, a 401k is a retirement investment vehicle which is usually linked to your employer and in which your employer can match your savings contributions. If your employer offer to match any percentage of your income if you invest it in a 401k, take them up on it! That is free money sitting on the table. If you have an up to 5% match offered by your employer and you make $100,000 annually, that means that you have to contribute $5,000 and your employer will give you an additional $5,000 in free money. Plus, you get to reap the tax-deferred growth benefits of the retirement account and watch your contributions double and triple as they grow over the years. For 2019, you can contribute up to $19,000 annually to your 401k. Once you hit 70 and a half year old you will have to take required minimum distributions from your account

5. A Financial Plan

Having a long term financial plan is the roadmap to a lifetime of financial success. Without it, you may find yourself focusing too heavily on near-term goals, like paying off debt or saving for a vacation, at the expense of long-term strategic goals like a well-padded retirement and insurance coverage. Working with your financial advisor to set up a financial plan is your key to the kingdom. Working closely with an advisor can help you tackle short term and long term goals, plan for your family’s unique needs, plan for college savings and retirement, and, hopefully, plan for your family’s next generation’s wealth.

If you are already 35 or near it, and you haven’t got all these financial planning tools in your pocket, don’t worry. It’s never too late to get your financial house in order. It may seem like a lot to do at once, but take it slow. Work with a financial advisor to set up a long term plan, start saving for your emergency fund, start the process to set up your retirement accounts, and get quotes for term life insurance. It may take some time to get set up but slow and steady makes sure that you understand the process and set up these financial tools to work the right way for you.

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