Regardless of your stage in life, growing and preserving your wealth should be an ongoing priority. The following three steps will help secure your financial future.
Step 1: ASSESS YOUR PROGRESS
The very first step down the path to financial security is making a proper assessment of your current progress. The beginning of a new year is the perfect time to focus on your family’s finances.
Calculating your net worth is the most accurate assessment of your overall financial picture. In the simplest terms, your net worth is the value of all your assets, less the total of all your liabilities. As you pay down debt, and boost your savings, your net worth should rise.
It’s a good idea to revisit your balance sheet on an annual basis to see where you stand financially, and help you refine your goals for the coming year. Check out the Net Worth Calculator.
Step 2: GROW YOUR ASSETS
Usually, accumulating wealth happens over time, but there are important decisions you can make that will help you to grow your wealth at a faster pace, regardless of your age. First, make sure you regularly contribute to a retirement plan and take advantage of any company match available from your employer. While you have no control over the stock market or world events, you do control how much you save and how it’s invested.
Your asset allocation needs to reflect your time horizon until retirement and your tolerance for risk. Historically, stocks have out-performed both bonds and cash, but they are also the most volatile. In general, your investments should become more conservative over time and should allow you to stay invested regardless of the market’s volatility. Try the Asset Allocation Calculator.
Step 3: PROTECT YOUR WEALTH
To protect your wealth you need to manage day-to-day and long-term risk. To help you manage short-term risk, build a 3-6 month emergency fund to cover your family’s expenses in case you lose your job or are unable to work. Tapping your retirement dollars for emergencies can be extremely costly and could derail your future retirement.
Another risk to your wealth is investment risk. Investing too aggressively or failing to diversify can expose your portfolio to unnecessary volatility. In addition, moving all of your dollars at one time can be dangerous to your investment account. Making incremental changes over a longer period of time will help protect your portfolio from the large-scale risk of mistiming the move.
Finally, make sure you are adequately insured against risk. Protect your property through home, auto, and, if appropriate, an umbrella policy. Consider purchasing adequate life and disability insurance to protect your dependents from lost income. And don’t allow your health insurance needs to be put on the back burner, or your wealth could be devastated by a medical emergency. In addition, you may want to think about purchasing long-term care insurance to protect your estate against the ever-rising cost of home health care or an extended nursing home stay.
Following these three simple steps will not guarantee you’ll retire a millionaire, but they will definitely improve your odds. To secure your family’s financial future assess your progress at least annually, put away as much as you can, and protect your assets by insuring against risk. Control the things you can control and protect against those events in life over which you have no power!