Essential Steps for Long-Term Financial Security

Financial security is a feeling of calm and confidence in your finances. It means you have a safety net in place to recover from financial setbacks and are on track to meet your savings goals.

For Maria, who makes $50,000 a year, that might mean paying off debt, building an emergency fund, and saving for future goals. It might also mean knowing collector calls will no longer keep her up at night.

  1. Set Goals

Creating financial goals is an essential step toward achieving long-term financial security. This process involves determining what specific financial objectives you want to reach, estimating how much time and money will be needed to get there, and setting a deadline to accomplish your goal. Financial goals can be anything from paying off debt to saving for a home or retirement. Having a clear plan in place can help ensure that you’re not taking on too many risks and that you are working toward your desired outcome.

One of the best ways to achieve your financial goals is to break them down into smaller, more manageable steps. This is referred to as the SMART method of goal setting, where your goals are specific, measurable, achievable, relevant, and time-bound. Using this strategy can make it easier to stay motivated and overcome any challenges that come up along the way.

Once you’ve set your financial goals, it’s important to prioritize them. For example, if you have credit card debt to pay off, this should be at the top of your list. It’s also a good idea to have an emergency savings fund in case of unforeseen expenses, like an unexpected car repair or medical bill.

If you’re struggling to prioritize your financial goals or need assistance developing a plan, consulting with an accounting and financial advisor may be helpful. SmartAsset’s free matching tool can help you find a financial advisor who serves your area. Having an experienced professional by your side can help you create a roadmap to financial stability and guide you through the best opportunities for your unique situation.

  1. Develop a Budget

Creating a budget that outlines short- and long-term financial goals is important. Then, allocate funds towards your goals each month based on your income and expenses. For example, if your goals include saving for retirement, you may want to set aside 15% of your income each month or use the 50/30/20 rule (20% for savings, 30% for paying down debt, and 50% for spending).

Once you have created a budget, tracking your progress is important. You can do this by downloading a budgeting app, keeping a spending log on your computer, or carrying around a notebook. You should also review your budget at the end of each month to determine whether you’re on target or need to tweak your plan.

Creating a budget will help you better understand your financial situation, which may make it easier to save and spend wisely. It will also help you identify areas where you can reduce unnecessary spending and allocate that money to your goals. For example, if you’re spending too much on eating out or entertainment, try reducing those expenses by finding cheaper alternatives.

A good budget should reflect your financial priorities and allow for flexibility for unexpected expenses. It is also a good idea to revisit your budget periodically so you can adjust it as needed and celebrate your successes. Like navigating the seas, your journey to financial security will have ups and downs. But if you stick to your plan and continue making progress, the rewards will be worth it.

  1. Invest in Your Future

You might think investing in your future sounds like a lofty goal, but it’s easier than you might imagine. Start by determining how much money is coming in and going out of your household each month. This will help you determine how much you can allocate toward debt pay-down, emergency funds, and retirement savings. Once you know what you have left over each month, set aside 10% of that to invest in your future. Savings accounts and high-interest online brokerage accounts can help you make the most of your money.

While it might seem counterintuitive to invest in your future when the markets are so volatile, a disciplined approach can lead to long-term financial security. To achieve this, you should first focus on building a strong foundation by eliminating debt and ensuring your expenses are less than your income. You should then invest in a diversified portfolio of mutual funds within tax-favored accounts such as a 401(k) or IRA.

Then, consider taking some risks. This could mean taking on a higher-paying job with more upside potential or going back to school to learn new skills that can boost your career trajectory. However, you must always keep in mind that risk and reward go hand in hand. To maximize your chances for success, invest with an advisor who can help you develop a diversified portfolio that aligns with your financial goals and risk tolerance.

With time on your side and the power of compound interest, the more you save now, the more wealth you’ll accumulate over the long term. In fact, if you invest $150 each month over 20 years, you’ll have more than $73,000 to spend in retirement.

  1. Get Out of Debt

Having too much debt can be stressful. It can affect your ability to purchase a home or car, find employment, and pay monthly bills. To get a clear picture of your debt, you can calculate your Debt-To-Income (DTI) ratio, which is your total monthly debt payments divided by your gross income. If your DTI is high, you can take steps to reduce it. For example, you can make extra payments to pay off credit cards, student loans, and mortgages. In some cases, you can also benefit from student loan forgiveness programs or income-based repayment plans.

Getting out of debt is a key step to long-term financial security. You’ll need to reshape your attitude toward money and debt to do this. For starters, you can start by eliminating credit card debt and reducing your loan number. Then, you’ll want to focus on paying off your other debt. Finally, you’ll want to build an emergency fund to cover unexpected expenses.

If you’re struggling to balance your budget and pay off debt, consider reaching out for help. A professional financial advisor can provide guidance and help you create a plan to reach your goals. SmartAsset’s free matching tool can pair you with advisors who serve your area.

Financial security can feel out of reach for many people, but achieving it with the right plan and dedication is possible. By setting financial goals, prioritizing your debt, and reducing expenses, you can put yourself on the path to long-term financial success. Just remember to keep these essential steps in mind, and you’ll be on your way to financial stability before you know it!

  1. Create a Savings Plan

Saving money is central to achieving both short-term and long-term financial goals, including building an emergency fund, purchasing a home, and investing in retirement. Unfortunately, many Americans aren’t saving enough, with personal savings rates below 10% of disposable income. Developing an effective savings plan can help you increase your savings rate.

To create a savings plan, you must identify and prioritize your goals. For example, if you need to replace your car in the near future, this should be a top priority over paying off debt or contributing to your retirement account. You can also include longer-term goals in your savings plan, such as retiring at a specific age or sending your children to college.

Regardless of the size of your savings goals, it’s important to create an attainable plan that you can execute. The best way to do this is by creating a budget that includes an accurate picture of your income and expenses, with precise timing to reach each goal.

You should also set realistic short-term goals for your current situation and abilities, such as aiming to build an emergency fund with three-six months of living expenses or saving up for a new vehicle. Automating your deposits into savings or investment accounts is a good idea to encourage consistency and keep you on track. Finally, try to reduce your expenses by cutting back on non-essentials or finding ways to make more money, such as taking a side job, getting a raise at work, or starting a small business. A solid savings plan can help you achieve financial security, regardless of age or present circumstances. Ideally, you’ll be able to retire comfortably with enough money to live the rest of your life in comfort.