In 2019 the average millennial budgeted over $4,400 to take five vacations, according to CNBC.[i] They are even more likely to go into debt for travel and are not willing to put off their vacation dreams until they can afford it.[ii] With the average credit card having a 16.14% interest rate, it is no wonder many Americans struggle to get out of debt! Too many times we see individuals prioritize today’s adventure over a financially sound future.
Now, we are not saying taking a family vacation is bad! However, we do believe everyone should make planning for a sound financial future a priority! We often get asked “what should I prioritize to make sure I have a sound financial future?” We have a few general guidelines that we use as a map to work towards these goals. The two main components of a financial plan are the de-risking stage and the growth stage.
The de-risk stage is first. You need to make sure that if an emergency occurred in your life, you and your family will be okay. This includes making sure you have an adequate emergency fund, reviewing your written budget, and having enough insurance to protect your family. This stage also includes paying down your “risky” debt. We consider most non-mortgaged debt to be in this category, but especially credit cards, student loans, personal loans, etc. During the de-risk stage, a thorough review of your estate plan should be done to ensure if something happened to you, your family will be taken care of.
Once you have reduced your risk to an adequate level, we can move on to the growth stage of a financial plan. This would include saving for retirement, creating a college savings plan for children, fine tuning your investment strategy, and creating gifting strategies to continue your legacy. Once we are in this stage of financial planning you will begin to feel financial freedom. Freedom to take that extra vacation, freedom to pay down your mortgage early, freedom to not worry as much about tomorrow. It is at this point where we can look back and appreciate taking the time to prioritize for a sound future.
If you would like to evaluate your priorities to see if you are on track for financial freedom, we are here to help!
All Investing involves risk including loss of principal.