Four Steps To Financial Freedom
Here is an initial plan to get yourself into the best position to make your retirement a success:
1) Pay Off High Interest Debt.
Good debt turns to bad debt when the debt interest rate exceeds after tax investment return . While after tax investment return depends upon risk assumed and overall tax rate, a reasonable assumption for this might be 6%. Average credit card rates are currently over 15% which is well over the threshold. Pay off credit card debt first.
2) Take Advantage Of Employer Sponsored Retirement Plan
If your employer sponsored retirement plan has low expense investment options and plan fees (less than 1% total), contribute up to the maximum allowed. Even if the retirement plan has high fees and expenses, contribute up to the company match, if offered. The extra expense you pay over the life of the plan will not offset the 100% up front return the match creates - which will put you ahead.
3) Build a Safety Net.
It is important to meet your family's basic insurance needs such as health and life insurance. When purchasing these, unless there is a personal or family history, bet on good health and long life with lower cost plans. In addition to your insurance needs, build a cash, or low risk, highly liquid investment position of around 3-6 months of living expenses.
4) Fund an Investment Account.
Allocate a consistent stream of cash into a low expense investment account. If you have a long enough time horizon, pursue a higher return or growth strategy and let compounding do its work. The rule of 72 is a useful shortcut to figure out how many years it takes for an investment to double. Divide 72 by the interest rate, or return, to get the number of years. A 6% return doubles in 12 years. A 9% return doubles in 8 years while a 12% return doubles in 6 years.
The information presented here is the opinion of the author and may quickly become outdated and is subject to change without notice. All material presented in this article are compiled from sources believed to be reliable, however accuracy cannot be guaranteed. No person should make an investment decision in reliance on the information presented here.
The information presented here is distributed for education purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or participate in any particular trading strategy.
Performance data showing past performance results is no guarantee of future returns.