Regardless of your age, job, and income, nothing changes the fact that you can be proactive in regards to your finances.
This holds true for experienced professionals who earn hundreds of thousands of dollars per year. It also holds true for new graduates who are working for minimum wage in hopes of eventually reaching the top of the company. And then there is everyone in between.
The word proactive, as it applies to finances, means something different to everyone. While there is nothing wrong with having your own approach, you should definitely take these five details into consideration.
1. Pay Down Debt
Like most, you may find yourself in debt at some point. From student loans to a mortgage, from credit cards to home equity loans, you need to know exactly where you stand.
Once you have a clear idea of how much debt you’re carrying, it’s time to be proactive.
For some, the best approach is to tackle the loans with the smallest balance. Others, however, decide to start with high interest debt first.
The strategy you take isn’t as important as actually getting started. Sure, you could make the minimum payment every month, but this is a slow process that has the potential to drag on for many years.
2. Your Taxes
Are you the type of person who dreads tax season? If so, you probably wait until April to review your tax information and schedule an appointment with your tax professional.
This is a mistake that you don’t want to make in the future. Instead, when you take a proactive approach to your taxes, it’s much easier to find ways to save.
Believe it or not, many people miss out on deductions and tax credits every year. The reason for this is simple: they don’t keep track of what they are doing through the year, and worse yet, they throw their return together at the last minute as to avoid penalties and interest.
When you’re proactive, this never comes into play. Once you find a tax professional who shares your vision, you’ll always have a solid grasp of what to do next.
3. Start an Emergency Fund
Are you the type of person who believes nothing major will ever go wrong in your life? You’ll never lose your job. You’ll never get struck with a serious illness. You’ll never be involved in an accident.
While you hope that luck is always on your side, there’s nothing wrong with preparing for the worst.
When you start an emergency fund, you’ll feel much better about your finances should something go wrong.
For instance, if you lose your job, you can turn to this money to help pay your bills until you find another employment opportunity.
As a general rule of thumb, your emergency fund should cover six months worth of expenses. So, if your monthly expenses are $7,000, you’ll want to save approximately $42,000 in a liquid savings account.
4. Buy Life Insurance Now
Let’s face it: nobody likes to talk about life insurance. Nobody wants to think that about what will happen when they pass on.
If you’re a responsible adult, if you’re somebody who is proactive with your finances, this is something you need to think about today.
The process of buying life insurance is not complex, but it can be detail oriented. You need to compare quotes and companies, decide which type of policy is best for you and your family, and then focus a lot of your attention on the death benefit.
Even though it can be an anxiety-filled process, it’s one that you want to take on if you’ve yet to do so.
5. Save for Retirement
Do you remember the good old days when most workers received a pension? Maybe you’re familiar with this because your parents are in this position.
Unfortunately, things have changed over the years, and pension plans are not nearly as common as they once were.
Making matters even more complex, the future of the Social Security system is anything but bright.
If you want to live the life you’ve been dreaming of in retirement, you have to be proactive in implementing a savings plan.
For many, this means participating in an employer sponsored plan. It may also mean opening a traditional or Roth IRA.
The earlier you begin saving for retirement the better off you will be. After all, you want to give your money as much time as possible to grow.
Tip: even if you’ve waited until later in life to start saving for retirement, you can still reach some of your goals. In other words, it’s never too late.
When it comes your finances, you don’t want to sit back and hope for the best. By taking a proactive approach, you’re giving yourself more control over your future.
Have you been proactive in the past? Is it time for you to make a change?