Getting Your Financial House in Order
A strong financial future is often built like a house, one step at a time, on a solid foundation. The six steps below describe one way participants may think about the order of their planning decisions. Individual circumstances differ, and the right sequence may vary from one household to another.
1. Lay the Foundation: Emergency Savings
Every house needs a base before anything goes up. Many participants build toward an emergency fund that covers 3 to 6 months of living expenses. A dedicated reserve may help reduce the need to draw on retirement savings for unexpected costs.
2. Build the Walls: Your Retirement Plan
Walls give a financial house its structure. Many workplace plans offer an employer match, and the terms vary by plan. Contributing at least enough to receive the full match may allow a participant to take advantage of an employer contribution that would otherwise go unused.
Once high-interest debt is under control (Step 3), some participants work toward saving 12% to 15% of pay for retirement. Targets depend on individual circumstances. Starting small can also be a reasonable approach, since even a 1% increase in a contribution rate, or an extra $50 a month, may add up over time.
3. Clear the Ground: Manage Debt
A strong structure is difficult to build on unstable ground. Paying down high-interest debt, such as credit card balances, may be a useful priority. Each payment reduces the balance and frees up cash flow that could be redirected toward saving.
4. Add Extensions: Outside Savings
Extra rooms can support extra goals. For goals beyond retirement saving, participants may consider an IRA, a Roth IRA, or a brokerage account. Spreading savings across several types of accounts may reduce reliance on a single account, although each account type carries its own rules, tax treatment, and risks.
5. Put on the Roof: Protection
A roof offers shelter from storms. Health, disability, and life insurance coverage may help protect a household from unexpected events. It may also be worth confirming that retirement plan beneficiary designations are current, especially after a major life change such as marriage, divorce, or the birth of a child.
6. Add the Windows: Growth and Upkeep
Windows bring in light, and upkeep keeps the whole structure sound. Diversifying investments may help balance growth and risk, although diversification does not guarantee a profit or protect against loss. As retirement approaches, participants may revisit their investment allocations and rebalance when needed. Reviewing contributions at least annually, and staying current on a plan's features, may also help keep a plan aligned with changing circumstances.
This article is provided for general educational purposes only and is not legal, tax, or individualized investment advice.
Important Disclosure Information
MCF Advisors, LLC (“MCF”) is an SEC registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. More information about the adviser can also be found by visiting: https://adviserinfo.sec.gov/firm/summary/130372. The above commentary is for informational purposes only. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. This is not intended as an offer or solicitation with respect to the purchase or sale of any security. MCF may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Please remember that past performance is not indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this blog/newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog/newsletter serves as the receipt of, or as a substitute for, personalized investment advice from MCF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MCF is neither a law firm nor a certified public accounting firm and no portion of this content should be construed as legal or accounting advice. A copy of MCF's current written disclosure statement and customer relationship summary (“Form CRS”) discussing our advisory services and fees continues to remain available upon request. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement. If you are a MCF client, please remember to contact MCF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services.
