Building a Foundation for Future Wealth
Although many people are aware of the importance of saving and investing for the future, it is oftentimes difficult to know the best way to get started. Looking at a goal of saving $500,000 or $1 million may seem impossible – especially when it is hard to make today’s expenses meet.
The good news is that building a foundation for future wealth is not as difficult as it may initially seem. Here, similar to with any large goal, the journey should ideally begin with just one single step.
Start with What You Already Have
One of the best ways to begin moving towards future financial security is to start with what you already have. This means taking stock of current income, expenses, and any savings or investments. Then, once you have your starting point, you can break down how you will get from Point A to Point B into smaller, more manageable pieces.
Not only will this help you to focus on the task at hand, it will also allow you to both achieve and to celebrate your accomplishments as you move forward. In doing so, it is likely that you will also find motivation and confidence to keep moving in the proper direction.
How to Develop the Foundation for a Future Wealth Plan
In developing your future wealth foundation, it is essential to first set up an emergency fund. This is because if a situation were to arise where you would need access to funds quickly, you will be much better off using cash that you have saved versus digging yourself into high interest credit card debt.
There are any number of emergencies that could come up – both minor and major – at a moment’s notice. These could include an auto accident, natural disaster, and/or medical illness or injury.
Therefore, although you may want to start investing your available funds right away, it is a good idea to have at least the equivalent of between three and six months income stored safely in a savings account for potential emergency situations. With your emergency fund in good order, you will be protected against being potentially “wiped out” financially.
Along with an emergency fund, it is also important to have adequate insurance coverage – especially for what could turn out to be financially devastating occurrences. Major crises such as medical issues, auto and home-related destruction, and even legal situations could all be quite costly if they should come about.
Types of insurance coverage that should be considered include:
- Auto Insurance
- Homeowners Insurance
- Medical / Health Insurance
- Disability Insurance
- Life Insurance
- Long-Term Care Insurance
- Legal Insurance
Moving Beyond Financial Protection
Once you have built a solid financial foundation that includes protection of your current assets, it will be time to move forward with your longer-term savings and investment plans. This is where you will really be able to build up your momentum – once you have taken that first critical step.
Even if you don’t have a lot to contribute, the magic of compound interest and other financial growth strategies can really allow your account to accumulate over time. For example, even if you only invested $5 per month at a set rate of compound interest, your long-term results can be amazing.
$5 Per Month Compounded Annually
When investing your funds, it is also important to be sure that your assets are well diversified. This means that you should have some of your investments placed in vehicles that have the potential for high growth, while others are kept in safer options that can help in “balancing out” any losses that may occur.
The Bottom Line
In moving towards the goal of long-term financial security, it is first essential to take stock of – and to protect – what you already have. Once you have done so, using time and consistency to accumulate assets can literally mean the difference between security and chaos.
Therefore, ensuring that you follow a savings and investment plan is crucial to getting – and keeping – your money working for you. With this in mind, your financial independence could even arrive much sooner than you may think.