To have a strong financial solution, you must make good financial decisions. The moment a bad decision is made, plans can become easily derailed and that can cause a lot of heartache and confusion. Currently, many people are making poor financial decisions and most of them are under the age of 55. Approximately 25% of the under-55 group is heavily relying on their 401(k)s to carry them through in the future. Only 20% plans on buying real estate at a decent price. Even less than that say they would seek out annuities and insurance because of their guarantees.
Those aged 25 to 54 don’t see a financial planner as one of the best financial decisions and only 14% believe that rebalancing their finances is among the most important financial decisions that they can make. The fact is, rebalancing is something that needs to be done frequently so that things do not go out of balance and cause chaos.
Recognizing that you need balance within your finances and acting on that realization is one of the best financial decisions you can make. Knowing that you may have to balance things out once in a while will also help you keep everything in check. What does this entail? All you need to do is keep track of your debt-to-income ratio and make worthwhile investments rather than put money into things you don’t need or have more risk than what you are willing to take.
For instance, it may not be worth refinancing your home so you can use the equity to take that dream vacation. It is actually more feasible for you to save the money in a high interest bearing account. Rather than pay more on the mortgage, you can save the difference between what you are paying now and what you would be paying and earn interest on it. You can make it a goal to take that vacation in a year or 18 months.
When it comes to investments, make sure you have different types of investments in your portfolio. If one investment loses and another gains, you are not at a major loss. You also need to stay on top of that portfolio so you can ensure it is working for you. If you feel like it isn’t, talk to your broker about it and see what you can change to balance your portfolio even more.
If you have credit cards, start paying them off now. At the same time, don’t let contributions to retirement accounts suffer. If you can transfer the balance of a high interest credit card to a lower interest card, go for it. This will save you money as you are paying it off. If you can transfer more than one card balance to the lower interest card, you are going to save even more. Looking for low interest balance transfer cards every six months and finding such cards can save you a lot as you work toward paying down your balances. The goal is for you to have less debt when you retire so your retirement income is paying for your needs and not your debt.
When it comes to planning for the future, many individuals say that long-term financial planning is a priority. They are not concerned with short-term performance. The problem is that so many people are having problems sticking to their plans. Over half of individuals under the age of 55 say that they need to improve their financial planning. Around 23% says that they are playing a game of catch-up. In other words, their financial plans have been totally derailed and they are trying to get back on track. Over half say that unexpected expenses that led to more debt is what derailed them.
Twenty-two percent has turned to their savings and retirement accounts to make ends meet and 37% blames a lack of effective financial planning for their financial woes. Sixty-nine percent say that the “pace of society” makes it difficult to stick to financial goals. They say they are just too busy with day-to-day responsibilities to focus on the future.
55 and Older
Those 55 and older established some or all of the balance that was discussed earlier, but it is also true that those 55 and older may not have had as much debt as the younger generation does now. Now the younger generation has college debt that takes much longer to pay off and so much more. If you are in student loan debt, there are consolidation options, as well as programs that are designed to forgive loans. Check within your profession and with your current or prospective employer for such programs. If you are going to college, your current employer may pay some of your tuition. This can help relieve the overall amount of debt so you can also focus on paying that car loan or house payment.
As for what the 55 and older group says was among their best financial decisions, they say it was saving early. For the 25 to 54 age group, saving early is a top goal of 53%. Fifty-two percent said that they want to ensure their family is protected.
In the 55 and under group, paying off the mortgage is not really an issue because it is something that becomes a priority toward retirement. Rather than trying to pay off the mortgage, the goal is to amass sufficient funds for savings, emergencies, and retirement. The mortgage takes a backseat to other debt and after college funds have been funded so that the kids do not have to deal with the potential debilitation of student loans. Mortgages are typically low interests, so high interest debt should get the attention.
If you haven’t started saving early, don’t worry. You can still open retirement accounts and you can place money in your savings. Even if you are near retirement, don’t worry about the mortgage yet. Simply focus on retirement savings. The only individuals who should really focus on paying down the mortgage are those that are no longer claiming the tax deduction on their paid interest.
Lastly, those 55 and older said that buying real estate for a good price was a wise financial move. Real estate investing or renting out property can provide a great return on investment and produce an additional income. If you can afford to do this, then this is a way to amass more money that you can save to support you in retirement. As for whether or not a financial planner was a good move for those already retired, only 2% say that it was one of the best financial moves they ever made.