A solid long-term financial strategy requires both a foundation built in the present and plans for the future. Keeping your eyes on the prize means understanding that what you do now will impact how you’re able to live down the line. Here are four tactics for creating a long-term financial strategy.
Adjust Short-Term Spending
A sustainable and comprehensive financial strategy takes months and years to grow, but you can budget now to reap the rewards later. Here’s the budgeting process, according to Time:
- Take stock of your income after taxes.
- Track all your regular spending for several months.
- Keep track of miscellaneous expenses, as well.
- Anticipate expenses ahead of time and set aside funds.
- Look for places to “trim the fat.”
- Utilize online tools, apps, and advice.
The ultimate purpose of budgeting is to streamline your expenditures. Once you’ve put your budget into action, you’ll have additional money to allot for important causes like paying down debt, beefing up your savings and investing.
Actively Eliminate Debt
Carrying debt sometimes feels like trying to run a marathon wearing a backpack full of bricks. The sooner you eliminate your debt, the farther you can progress toward your meaningful financial goals—like buying a home, starting a college fund for your child, saving for retirement, booking a trip around the world, etc.
There’s no one-size-fits-all solution to personal debt, but there are options to explore depending on your circumstances. Some people tackle debt simply by scrimping and saving. Many people with credit card debt exceeding $10,000 utilize a debt settlement program, which involves making monthly contributions to a dedicated account until there’s enough within to negotiate with creditors through trained negotiators. It’s important to work only with reputable debt relief companies, however. A search engine query like “Freedom Debt Relief reviews” goes a long way in proving a company’s track record and legitimacy within the industry.
Build Your Emergency Fund
Theoretically, every consumer or household should have an emergency fund covering about six months’ worth of living expenses. This cushion exists to help people deal with life’s unexpected catastrophes: layoffs at work, fires, vehicle breakdowns, medical crises, car accidents and many more. But one recent survey from Bankrate showed that only 39 percent of respondents said they’d be able to cover a $1,000 emergency using their savings.
Lacking a sufficient emergency fund makes people more vulnerable to taking on debt in the aftermath of a crisis. Make it a priority to set aside funds each month to build up an emergency account. Aim for three months’ worth of savings. Then six. Then nine. Above all, avoid dipping into these funds for anything less than a true catastrophe. Emergencies will happen, but it’s how you deal with them that impacts your long-term financial strategy.
Having trouble starting an emergency fund? Here are 4 ways to grow an emergency fund.
Invest for the Long-Term
Investing is important because it capitalizes on the time value of money, or the “increase in the amount of money because of interest earned over time.” Long-term investments are an important piece of the puzzle because they give your principal investment the opportunity to rack up compound interest in the background.
There’s no one “right way” to invest your money. Consumers must consider the fact that riskier investments typically earn higher annual returns than lower-risk investments. Here’s one example from Investopedia: Someone with a $100,000 portfolio earning 3 percent annual return would have $180,611 after 20 years. Another person with a $100,000 portfolio earning 6 percent annual return would have $320,714 after 20 years.
No matter the specifics of your portfolio, it’s important to commit for the long haul. The backbone of a long-term investment strategy is patience; making rash decisions based on anxiety or emotions only sabotages the bigger picture. And, of course, the most important rule of thumb when it comes to investing is to start early. This gives your money the best chance to grow.
Adjust your spending, eliminate debt as soon as possible, stockpile emergency savings and invest early for the future. These tactics will help you thrive financially in the long term.