With an effective financial strategy, you can improve your bottom line by several thousand dollars each year. Through financial strategy, you can meet day-to-day expenses, budget for big-ticket purchases and invest money to generate additional wealth. You will outline your financial goals before coordinating a strategy. With a list of goals in mind, you can make the proper adjustments to your budget.
Financial Goals
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Financial goals effectively add a sense of purpose to your financial plan. Important financial goals relate to major turning points in your life, such as marriage, childbirth and retirement. For example, you may be looking to save up money for a down payment on a home to accommodate your growing family. To do so, you may specify a goal of saving up $25,000 in cash within the next two years.
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Credit, Cash Reserves and Insurance
Before aggressively saving toward long-term financial goals, it is important that you work to get your credit balances under control, establish six months' worth of living expenses in cash and also purchase insurance on your life and health. These steps will help you to access cash quickly so that you will not be forced to sell off long-term investments in emergency situations. When paying off debt, you must prioritize payments according to interest rates. For example, you should spend an extra $1,000 to pay off expensive credit card debt of 18 percent interest instead of directing the money toward an additional mortgage principal payment.
Savings Projections
With a list of financial goals in mind, you can pull up an online financial calculator and toggle through multiple variables. Specific financial calculators are available for loan payments, retirement projections and college savings estimates. After using the financial calculator, you should be able to determine the amount of money you need to invest each month at a projected rate of return to meet a certain goal. To generate additional cash flow for investing, you should minimize consumer spending within your budget. Consumer goods, such as designer clothing and high-end electronics, do not add value to your bottom line.
Investment Accounts
You must save in the right types of investment accounts to meet your objectives. For example, you can put money into a retirement account as a long-term saver. Retirement accounts, such as a Roth IRA, Traditional IRA and 401(k) plans, allow for tax deferral, which means that you will not owe taxes on investment income and capital gains generated within the account. However, early retirement account distributions made before age 59-1/2 are subject to a 10 percent tax penalty. For flexibility, you can combine a taxable brokerage account alongside retirement account savings. You can sell off taxable account investments for cash at any time without incurring penalties.
Buying Investments
You can build a diversified portfolio of stocks and bonds to invest for growth and manage financial risks. Stocks are ideal for long-term growth but can be volatile as economic conditions shift from year-to-year. Alternatively, bonds will generate stable interest income to shield your portfolio against significant losses in most economic conditions.