Every journey is a series of actions taking you to your destination. This is especially true of the journey to financial security – a path that includes many waypoints.
Last month, I asked you to assess where you are on that journey. (If you missed that column, visit http://bit.ly/1Pvyh1U.) Today, we’ll determine your next steps given your current waypoint.
This is the starting point. At this stage you have begun to consider financial security. You likely know others who have made it there – grandparents, parents, a neighbor or friends. And, I bet you know exactly what you’d do with your days if you didn’t have to work.
Planning is your next step. It’s time to protect your income, which is your greatest wealth-building asset.
Protecting your income means budgeting to spend less than you make, accumulating money for future expenses to prevent financial stress and insuring against major crises through health, disability, auto, home/renter’s and life insurance.
Now that you’re using a budget to protect your income, it’s time to build an emergency fund. Start with $1,000. If you earn less than $25,000 or are a student, start with $500.
You’ll be fully prepared when you have accumulated three months, or more, of living expenses.
If you have fully prepared by living according to a budget and building your emergency fund, congratulations are in order. You’re in better financial shape than the 62 percent of Americans who cannot come up with $500 to cover a minor emergency.
It’s time to depart.
Now, rid yourself of debt. Start with consumer debt, which includes credit cards, student loans and personal loans – those from friends, family, banks or home-equity loans. For most people, this phase of the journey takes 12 to 18 months.
After paying off all of your nonmortgage debt, it’s time to do three things:
Begin to aggressively payoff your mortgage. If you have a 30-year mortgage, consider converting it to a 15-year term. But no matter the length of your mortgage, pay extra if you can.
When you are within 15 years of paying off your mortgage, you have arrived on the final leg of your journey to financial security.
Now, it’s time to fine tune your investment plans so that you know how much money you’ll need to be financially secure and by what age you’ll meet that magical destination.
Wherever you may be on the path to financial security, your most important step is the next one. Keep moving, and remember to enjoy the views along the way.
firstname.lastname@example.org Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance. www.personalfinancecoaching.com.