Obvious for most, but I still get asked about this on a daily basis.
Draft a Will: Approximately 47% of U.S. adults have a will, but it's crucial for everyone to have one to ensure their wishes are honored after their death. A will is important for dictating who inherits your assets, appointing guardians for any minor children, and specifying your funeral preferences.
Eliminate Credit Card Debt: The average credit card interest rate hovers around 17% in 2024. By paying off credit card balances, you avoid these high costs, potentially saving a significant amount of money over time. Also, bad debt = bad credit score. You’re your credit cards wisely.
Get Term Life Insurance: For those with dependents, securing term life insurance is crucial. It's more affordable than whole life policies, with average monthly premiums ranging from $15 to $95, depending on factors such as age, health, and the amount of coverage. This step ensures your family's financial stability in your absence.
Max Out Your 401(k): The contribution limit for 401(k) plans in 2024 is $21,000 for individuals under 50, and $28,000 for those 50 and older. Fully utilizing your 401(k) can significantly boost your retirement savings, particularly with employer match programs, which essentially offer free money.
Max Out Your IRA: For 2024, the IRA contribution limit is $6,500, or $7,500 if you're 50 or older. IRAs provide tax advantages that can substantially increase your savings growth over time.
Buy a House: Owning a home can be a key component of wealth building. The median sales price of houses in the U.S. is projected at around $385,000 in early 2024. Buying a house is advisable if you're planning to stay in one location for more than 10 years and can afford the ongoing costs of a mortgage, property taxes, and maintenance.
Save Six Months of Expenses: About 26% of Americans lack emergency savings. It's advisable to save an amount equivalent to six months' worth of living expenses in a money market fund for added financial security. The average monthly household expense in the U.S. is projected to be about $5,200 in 2024.
Invest Wisely: With any surplus funds, consider allocating 70% to a stock index fund and 30% to a bond fund. Historically, the S&P 500, a common stock index fund, has offered an average annual return of around 10% before inflation over the past century. Bonds, offering less volatility and regular income, have seen average returns between 2% and 4% annually. This is basic advice for people who don’t want to delve deeper into the topic of investing money. Use old-school brokers like Vanguard that have minimal fees.
Seek Professional Advice: If financial planning seems daunting, or if you have specific goals like saving for retirement or funding education, consult a fee-based financial planner. They can offer tailored advice without the potential biases associated with commission-based planners.