Hot stocks have been all the rage lately, and if some of your friends invested in certain "hot" stocks they’re still probably talking your ear off about some of their #gains. However, what they probably aren’t talking about are the often overlooked, “unsexy” components of financial planning. Yes, there are personal actions you can take outside of investing that can have a substantial impact on your journey to financial success. Here are a few I recommend for everyone, but especially if you’re in the early stages of your career.
1. Build an emergency fund - Where do we start? Likely the most non-flashy place of all. I’m talking about an emergency fund. If you don’t know, it’s a cash reserve fund that you set aside in a savings account with 3-6 months of your living expenses for when things don’t go as planned. Yes, this is your unexpected medical bill/car broke down/lost your job-fund to help out when you have that bad day. The goal here isn’t to try to generate the highest yielding interest rate on this cash, it’s to make sure it’s there when you need it most. So, when you get T-boned coming through a stoplight on that dreary Monday morning, you won’t be up late wondering how you’ll be able to afford a new car. Instead, you’ll be prepared to address the situation and move on to what life throws at you next.
2. Pay off high interest debt – Often times, it’s not worth thinking about investing if you’re carrying high interest loans. Here, I’m talking about carrying credit cards with a balance. It may not be top of mind, but you’re likely paying somewhere between 10-25% in interest costs on credit cards. Think about tackling this debt like making a 10-25% return on your investment. No, you won’t be bragging to your friends that you invested in the next hot stock, but the impact on your finances will likely be even more beneficial.
3. Automate your savings – We all know what happens to money in your checking account. It gets spent! If you’re like most people and have a “see it, spend it” attitude, do yourself a favor and automate your savings. Start small. Even an automated $50 transfer every month from your checking into a savings account will boost your savings rate without thinking about it.
4. Know your credit score – Do you even know what your credit score is? Let’s be honest. You probably haven’t looked at it since your credit report was run by the real estate broker for your Sept 1st apartment lease. If you have long term goals like buying a house in 5 years, your credit score will play a large role in your ability to:
• Obtain a mortgage in the first place
• Secure a favorable interest rate over the life of the loan
Take the time now to build up your credit history so that when the time comes that your significant other is subtly hinting at looking into buying a home, you’ll be in a favorable position.
5. Pay your bills on time – Building on the last piece on your credit score, knowing how to build your score is just as important as checking it often (or “is more important than checking it often). Your payment history accounts for 35% of your FICO® score, the most common credit score used by lenders. If you’re behind on payments, you need to get current and stay current. Set up payment alerts and auto-payments so that you never miss a closing date.
If you have questions about how these strategies may apply to your personal situation, feel free to reach out, I’d be happy to help.
All the best,
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.