Even if you’re a young adult, it’s never too early to start thinking about your financial future. Whether you’re 23 or 53, taking the time to plan your finances will provide you with important advantages in life, including more security and the ability to make smarter decisions about how you spend your money. Financial planning will help you feel more in control of your money, which will lead to greater peace of mind and more chances at success in every aspect of your life. Read on to learn more about why financial planning can be such an important part of both your short-term and long-term lives!
Big Rewards for Small Efforts
Investing a little time and effort into financial planning early on can really pay off. Time is money, after all, and that’s especially true when it comes to saving up for retirement or your kid’s college education. Rather than putting these responsibilities off until you have more free time, start preparing now by automating small amounts of money from your monthly income into an account earmarked for savings or investment.
Life Insurance
One of the most basic financial planning strategies is life insurance. Most experts recommend that you have a policy worth at least five times your income—which would be $250,000 if you earn $50,000 per year. Before you shop around for coverage, however, make sure you have enough liquid savings to cover funeral costs and other final expenses in case something unexpected happens.
Health Insurance
Many families get health insurance through their employer. If you’re one of these people, that’s great! But you should also consider getting disability insurance. This can help your family if something happens to you and you’re unable to work.
Disability Income Insurance
While you might be able to afford living off your savings when you’re healthy, what happens if you become injured or ill and can no longer work? Disability income insurance replaces a portion of your lost income, so that your finances don’t take a hit when illness prevents you from working. Without it, your savings could run out sooner than expected, which is why many financial advisors recommend getting disability insurance early on in life.
Long-Term Care Insurance
If you're young, buying long-term care insurance can seem like a silly or unnecessary expense. After all, if you’re still in your 20s or 30s, it seems highly unlikely that you'll ever need such protection. But taking a moment to consider what could happen—particularly if you develop some sort of disability or disease that requires long-term care—may encourage you to think otherwise. Long-term care is very expensive and often not covered by health insurance, so planning ahead and getting coverage now may help ensure that you have access to quality care when you need it most.
Investment Planning and Tax Savings Strategies
Before you start planning, figure out how much you’re able to invest. If your employer offers a retirement plan, see if it’s possible to contribute at least enough money each year to max out on your company match; if so, that should be your starting point. Then think about other savings goals and/or investments you want to make—for example, saving up a down payment on a house or car or contributing more money toward an emergency fund.