Carnival of Debt Reduction – Learn Some Investing Basics

by ABC

Debt reduction is a key part of financial planning because you don’t want to be making those loan payments for the rest of your life.  However, what happens when you have your debts under controls or even…(gasp) completely eliminated?  Then you have to start investing for your retirement.

Foreign exchange trading is a risky trading strategy that should only be considered after careful study.

How do you invest for retirement?  And how much should you save?  Only you can answer those questions by learning more about investing and then applying the lessons learned to your own situation.  We’ll go over some of the basics steps in this carnival so that you will know where to start when your debts are gone.

hockey-goal

Setting financial goals

It doesn’t matter whether you are digging out from a mountain of debt or planning your exact retirement date – you need to set some financial goals.  What exactly do you want your finances to look like in the future?  Short term, medium term….long term?  Are you willing to work longer and have more money in retirement?  Or would you rather get by with less money and retire at an earlier age?

Here are the top financial goal posts (aka the “editor’s picks”):

measuring-tape

Measure your financial health

How much debt do you have?   How much are your current retirement savings?  Do you have any future financial obligations? (ie college education)  Will you be getting any pension income?  Social security?  How much can you save right now and in the future?   You have to set a starting point for your financial journey – whether it’s your declining debts or increasing retirement investments – you have to know what you own.

financial-plan

Set up a plan

This step could involve some complicated spreadsheets to determine to the penny how much you want to save for the next 30 years….or just an educated guess.  The reality is that if you have a long time to retirement then there are too many variable to plan accurately so just working at your financial health by paying off debts and saving money might be the best strategy.  Setting up an investment policy statement is usually a good idea.

withdrawal-rates

Withdrawal rates in retirement

The most common formula for safe withdrawal rates in retirement is the 4% rule.  This rule isn’t written in stone but it’s a good guideline.  Don’t forget that you will probably have income sources other than your investments.  Social security might undergo some changes over the next few decades but it’s unlikely to stop paying out completely.

asset allocation

Asset allocation

Some people like to have all their money in stocks, others all in CDs.  I would suggest that your asset allocation should be somewhere in between.  Remember that the shorter your investment time horizon – the safer your investments have to be (ie less stocks).  Don’t put all your eggs in one basket!

Photo credits:  AussiegallAlex_Kuruz, Army_Arch, BLMurch

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