The future you've dreamed about is finally here. College is over. You've moved out on your own and started your career. But, with independence comes responsibility. You now have your own paycheck to manage, financial obligations, and bills that are arriving addressed to you. If you're lucky, you might have a little extra money after monthly expenses are paid. The future has suddenly changed, and it might be time to consider allocating any left over money to start building your assets with an investment portfolio. However, before assets can be built, you need to have a solid financial foundation.
The first step is by establishing an emergency cash fund. This should be a set amount of cash that should only be used during emergencies, such as illness or unemployment. Most financial planners suggest an emergency cash fund that would cover your living expenses for three to six months. It's also prudent to review your existing Life insurance policies. If you don't have a Life insurance policy, then you might consider purchasing one. A Life insurance policy is one of the best forms of protection against financial losses.
Many young people write Life insurance off as something that only older or married people get. But, you now have financial obligations that need to be covered in the event of an untimely death. Now is actually the best time to invest in a Life insurance policy. In most cases, youth and health will equal lower premiums, which you might be thankful for down the road.
The two most common types of Life insurance are Term and Whole Life. Term Life insurance provides coverage over a set time period and is usually cheaper than its counterpart. It will usually provide coverage over a one, five, or 10 year time period, depending on the policy. It will pay a face amount to your chosen beneficiary in the event that you die during the period of coverage. It doesn't accumulate any cash value. On the other hand, a Whole Life insurance policy will accumulate a cash value. It's Permanent Life insurance, meaning that as long as you pay your fixed premium on time, the policy can't be canceled. However, it is usually more costly than Term Life insurance.
Another part of your financial foundation should be your long-term goals. For example, if you have an employer that offers a tax-deferred retirement plan, such as a 401 (k) plan, you should definitely contribute.
There are also annuities and IRAs to consider. Any of these can be viable options to begin building a retirement nest egg. Although you might have just begun your career, keep in mind that sufficient retirement funding rarely is achieved through just a few years of planning and saving. It takes years of planning, saving, and compounding interest to build your assets. The earlier you start, the easier it will be. In any event, the features and costs associated with retirement products vary greatly. One of our professional financial planners can help if you have any concerns about plan features, costs, or what plan best fits your personal needs.