You have dreamt about your life and you know where you want to live and what you want to drive and the kind of clothes that you want to wear. Have you ever taken some steps to calculate exactly what it would cost you to achieve the desired and dreamt-of lifestyle? If you’re following the herd, your answer would definitely be ‘No’. Nowadays, very few people have a complete financial portfolio that can save them against any financial odds. In fact, a complete financial portfolio should define individuals with fully-funded retirement accounts, a debt free life, a six-month emergency cash reserve, diversified investments across different profitable asset classes and who invests in themselves. But doesn’t this sound as a situation in the perfect world? Well, if this would be a perfect world, such would be a complete financial portfolio. The concerns of this article will present you a list of steps that you need to take in order to build a complete financial portfolio for yourself.
Before starting off with building your financial portfolio
Wait on! There are things that you have to do before beginning with building your financial portfolio. Sit down and take out a pen to make a list of everything that you own starting from stocks, mutual funds, bonds, cash, bank accounts and everything else. Also jot down what you owe to others, may be n the form of student loans, auto loans or even credit card balances. Make sure you are brutally honest about making this list and don’t keep anything off the list only to get it tomorrow. Remember that the key to changing your life is to determine exactly where you stand financially, at this moment of time. This balance sheet that you make is going to be important enough as you craft your way through the following steps.
The vital steps to building your financial portfolio
The process of building a financial portfolio is rather an intimidating and time-taking task and it may take years to complete. But if you are financially dedicated and diligent enough, you can reach your goal within a few years. Here are some vital steps that you can take in order to design your portfolio that will be a perfect match for your life.
- Contribute money towards your 401(k) plan: If you’re in the market for a long time, you must be aware of the fact that there are businesses that match contributions with the employees who keep aside money in their 401(k) accounts. The amount of these matched contributions can differ widely according to companies, mostly offering an escalation in benefits based on the tenure of the account. Despite receiving this free cash from the employer, there are some foolish individuals who don’t understand the way in which a 401(k) works and don’t contribute money towards it. Most of them believe that they can’t afford to reduce their take-home pay. However, the fact is that you can’t afford not to contribute. Even if your employer matches $1 for $1 up to the first 5% of your contribution, you’re immediately making a 100% return on your investment. And it is a fact that there is no other investment that can offer you such great guarantee.
- Trigger off your high interest credit card debt: The next step to building your financial portfolio is to develop a plan to trigger off your credit card debt. Now take the balance sheet that you’ve prepared and on a separate sheet of paper, rank all your debts according to the interest rates that you’re paying. List them according to their highest interest rate. Decide how much money you can exactly afford to dedicate towards your debt reduction every month from your regular income. In case you’re making regular contributions to a mutual fund or investment account apart from your 401(k) account, you can consider stopping that temporarily so that you can add more money towards your debt reduction funds. Keep paying the minimum balance on each account if you’re following the debt avalanche method.
- Open a Roth IRA and fully fund it: The Roth IRA is indeed the greatest financial account that is available to the investors in the United States of America. As long as your annual income doesn’t exceed $95,000 (single) or $150,000 (married), you can open a Roth IRA. The contributions are made with your after-tax dollars and all Roth IRA contributions can be withdrawn at any time without even qualifying for a penalty fee. Once you reach the age of 59 and ½, any kind of withdrawals anytime will be 100% tax-free! In case of Roth IRA, there’s no mandatory distribution age, Roth IRA contributions can be used to purchase a variety of investments like stocks, certificates of deposits and bonds.
So, if you don’t want to keep incurring debts and running behind banks to take out debt consolidation loans, you should design your financial portfolio in the best possible way. Keep the above 3 things in mind and stay on top of your finances for the rest of your life.
