By Rosilyn H. Overton, Ph.D., CFP®
Here are some steps that you can take, regardless of your income, to move forward on the pathway to financial independence and success. Look for specifics on how to do each step here on the FLEX site.
- If you don’t have debt, don’t create any. If you do have debt, plan to defer purchases other than absolute necessities until you get rid of it.
- If you have bad credit, once your debts are paid, work on removing negative information from your credit file.
- Once you are out of debt, create an emergency fund in case you lose your job, fall ill, or have some other disaster that cuts off your income. For most people 3 months living expenses are enough, but if you are in a field of uncertainty such as a freelance artist or musician, you may need to put away six months living expenses.
- Avoid impulse purchases, large or small. Plan purchases and save money for them until you can pay cash.
- Make sure that you have enough insurance to protect you in case of disaster. Check your car insurance, your health insurance, and the insurance on your home or apartment.
- If you can purchase even a very small home, do it now. Residences are at low prices now and interest rates are low. There is always a market for starter homes. Take only a fixed rate mortgage, not an adjustable rate that has a teaser low payment in the first years. Interest rates are almost at their lowest in 40 years. Interest rates will go up. Lock in today’s low rate. You may not have money to buy furniture right away, but it is not against the law to leave a room empty until you can afford the furniture.
- Once you have your emergency fund and have purchased a home, start investing in equities (stocks). When you first begin, the best way is to buy mutual funds. Choose a good-quality diversified growth or growth and value fund, and put money into it every month. There are funds that will let you start with as little as $250 and add as little as $50 – 100 per month. Although the last ten years have been one of the worst decades in history for stocks, over longer terms there is no other asset class that can give you a higher long-term return.
- Read about finances and financial planning whenever you can. Once you get to this point you may need to consult a financial planner to help you achieve specific goals.