The Road To Financial Empowerment: Part 2 - Are You Saving Enough?
Did you know that nearly half of Americans couldn’t cover a $400 emergency expense without borrowing the money or selling something? Even more alarming is that many people have no savings at all. In fact, almost 30% report having a zero balance, and 62% have less than $1,000 in savings, according to a survey by GOBankingRates.com. An additional 21% report having no savings account whatsoever.
Given these stats, how do you make good financial decisions around your savings? Ironically, many people will recommend that when you are starting to save money for the future you start by maximizing your retirement plan(s) contributions first. But is that using common sense? After all, what is the point of saving for retirement if you are not properly arranged to handle life between now and then? When starting to prepare for the future, evaluate protection first. If your protection decisions are not properly aligned, all the money you are saving for retirement could be vulnerable to unnecessary loss. Once you have addressed protection, you can then think about your savings.
For many people when it comes to saving, they aren’t sure how much is the right amount to save. Is it 2%, 4% or higher? Since there are so many variables when it comes to being prepared for the future, you should seek to work towards saving at least 15% of your gross income. This will allow you to be better positioned if taxes change, inflation alters or markets fluctuate (which we know they will). This recommended percentage should also be on your gross annual income. For many people, they pay their bills and satisfy all other obligations before they think about saving. In many cases, after all this has happened there isn’t enough money left over to make an impact. Obviously, you should pay your bills, but before spending on non-essential items set money aside to develop the habit of living on the remainder. By doing this, you will be in a better position for the future.
In addition to saving enough, make sure you build liquid assets. More than half of all households have less than one month’s worth of income in a readily available savings account, far from the six-month emergency fund many experts recommend. Liquidity is key as it allows you to take advantage of opportunities, pay for the replacement of items and deal with emergencies. Without this access to capital you may be forced to acquire debt, stop investing for the future or liquidate other assets.
When you work with a Leap Professional, you now have access to guidelines through the Leap Model Rulebook that help you create structures for financial success. Isn’t it time for your financial decisions to be made with common sense and simplicity?
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