Financial peace arrives when you no longer have to worry about your income being sufficient to cover your expenses. It’s a great feeling. Unfortunately, many people are financially insecure. They earn less than they spend and borrow the difference.
According to the Federal Reserve, 4 of 10 adults cannot fund a $400 emergency expense without borrowing from a credit card company or a friend. They do this even when credit cards typically charge anywhere from 14% to over 20% annual interest on unpaid balances. People who find themselves in such a situation worry about money constantly and worry what will happen when they stop working. For them, a comfortable retirement may never arrive.
So, what’s the answer?
There are four simple ways to increase your chances of achieving financial peace.
- First, live below your means. That means that you spend less than you earn and don’t buy everything you would like. This is the primary reason that so many lottery winners, who start out with millions of dollars, end up broke. It’s incredibly easy to fall into debt when people are eager to lend you money or extend you credit. But if you spend more than you make, you will never achieve financial security.
- Set a goal for yourself of saving at least 10% of your earned income and work up to 15% – 20% over time. An easy way to do this is to contribute to a 401(k) plan through your employer and put your savings on autopilot. This is a very simple and easy way to pay yourself first. Many employers even match a part of your contribution.
- Once you have created an emergency fund to take care of unplanned expenses, begin an investment portfolio that makes sense for you. A well-thought-out investment portfolio to which you make regular contributions is the best way of putting money aside for your retirement. If you are unsure about the best way to invest your money, get the assistance of an investment professional – preferably a fee-only fiduciary advisor – who can assist you and keep you on track.
- Stay the course. This isn’t easy. You may be tempted to take a detour or an exit ramp if life hands you a setback such as the loss of a job. Be wary of financial traps or offers that seem too good to be true. The secret to financial peace is perseverance. A good financial advisor can help you stay the course while you’re working, and as you transition into retirement. Following these steps should lead to that most priceless of outcomes: peace of mind.