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More than ever before, in today’s economy it’s important to plan for the future when it comes to your finances. Though the unemployment rate has slowly recovered from the dip it took during the great recession, none of us should ever grow too comfortable and complacent.
So how do you plan ahead so you’ll be in a strong financial position come what may? By focusing on three key pillars: savings, an emergency fund, and debt reduction. Any expenses that don’t relate back to those three are ultimately distractions from your long-term financial goals.
The answer is pretty simple. Savings is important because big expenses (mortgage, car, college tuition) aren’t things that you’ll be able to pay for with a single paycheck. If you haven’t saved in advance, you’ll find yourself with no recourse but to go into debt when those expenses hit.
Not all big expenses can be predicted, though. That’s where an emergency fund comes in. An emergency fund is essentially just a savings account dedicated to dealing with unexpected expenses that will inevitably crop up. Having an account that you can pull from during these times means that no emergency will completely derail your financial plan.
Finally, debt reduction is important because there is no greater drain on your resources than the interest rate on outstanding debt. Credit card debt is an especially insidious form of debt. The good you can do by building up your savings and emergency fund can all be undone if you’re accruing debt and interest during the process.
The methods for prioritizing each of the three are largely the same. First, you need to establish what your goal is: how much do you need to save, how big do you want your emergency fund to be, and how much debt needs to be paid off. Once you have those numbers, simply graph out how much you have to dedicate to each category every month and start working toward those figures.
Automation is your friend here. There are apps and websites that can help you budget to save as much as you need each month, and most banks have an auto deposit feature that will automatically take a portion of your paycheck and apply it to whatever accounts you choose. This takes out the mental effort of remembering to take out the money each month, and what you don’t see you won’t be tempted to spend.
These three factors are the pillars on which all other aspects of your financial health rest. If you can make sure you’re regularly contributing to each of these three crucial parts of the puzzle, then you’ll be on a path towards weathering any situation that comes your way.
Another way of weathering what life sends your way is with a signature installment loan. Signature installment loans are short-term loans that can give you the boost in cash you need when you need it most. Sometimes the first step in the right direction is the hardest, but with the right resources, a little patience and some self-discipline, anything is possible.