Financial decisions can have a great impact on your retirement plan. For a secured retirement you are required to plan in advance. As a general thumb rule you should always invest not less than 10% of your earnings towards retirement.
To increase your financial health you have to improve your financial habits. Below, in this article, we will be discussing certain rules that can enhance your financial health for a better retirement.
Assess your financial health every year
Balance sheet is generally used in companies to assess their assets and liabilities at the end of the year. We recommend you to have the same balance sheet for your personal financial data.
Make a list of your assets and subtract liabilities out of the total to arrive at the net worth. This net worth figure will represent your financial health for the year and gives you indication towards your retirement plans.
If liabilities are higher then you will have a negative net worth otherwise you will have a positive net worth.
Project your income and expenses every year
In the next step, you are required to project your income and expenses to know how much you are going to save for further investment.
To project income and expenses better, we suggest you to list down your source of income, head of expenses and then under each head project your future requirements. Subtract projected expenses from projected income to find out net surplus amount. If net surplus cannot fulfill your future investment requirements then you are required to consider revising your income and reduce your expenses.
Always compare your projected surplus amount with that period’s actual savings. Inflation is a major factor which reduces the future purchasing power. So consider it while calculating your future expenses.
Start saving early
The sooner your start, the better off you will be during your retirement years. Saving at an early age of your career can help you to reduce your liability in future as you are giving more years to reinvest your saving before retirement.
Have an emergency fund
There may be some unexpected emergencies which may come on the way of your life. You are required to keep some of your hard earned money in a saving account which can be accessed at the time of urgent requirements. You can also recycle your emergency funds by keeping in auto swapping term deposit account of a bank.
If you don’t have an emergency fund then as a part of good financial health we recommend you to have one. If you already have one then reassess it periodically to know whether it’s enough for your requirements or not.
As a rule of thumb you are required to keep at least one year of your expenses in an emergency fund. If you are planning to settle the emergency requirements with a credit card loan then you are heading into a wrong direction. What you can do is, use your credit card for the expenses and then make your payments from emergency fund to credit card agencies. Otherwise, you will be charged with so much of credit card debt every month that it will spoil your financial plan.
Plan before in paying your debt
There may be situations of taking a loan for housing or for some personal requirements. What ever may be the situation, you should make your plan before for settling your debt requirements.
In the process of settling your debt you should first consider your high interest rate debts and then move to low interest one. In this way you can keep your financial health in a shape for future retirement.
You can easily achieve a better retirement if you plan it early. Financial health is the most important thing for a successful life and also ensures to have better future. Please let us know if you have any suggestion or feedback.