By FINRA Investor Education Foundation
Much is written about the need to set financial goals. But what if you are just starting out? Maybe your experience saving money has been limited to tossing spare change in a jar. Maybe you’ve never invested a penny.
But now you know it’s time you do something with your finances. And you know goals are important.
Which goals should you set—and why? Here are four specific goals for those who are new to saving and investing. They are sound (we’ll explain why), and can help you lay a strong financial foundation for the rest of your life.
1. Review your credit report and credit score. This one is easy and can be done in a few minutes. Request your free credit report by going to www.annualcreditreport.com or calling (877) 322-8228. You can—and should—also get your credit score. When you take the Military Savers pledge, the FINRA Foundation will provide to service members and their spouses who have a .MIL email address no-cost access to our easy-to-use myFICO tool.
Why? Because reading your credit report lets you see what potential lenders see. It can also help you spot signs of identity theft. As for your credit score, it’s a key factor in determining how much you will pay to borrow money. Scores range from approximately 300 to 850: the higher your score, the better the terms of credit you are likely to receive. Good credit management leads to higher credit scores, which in turn lowers your cost to borrow.
2. Put aside money in an emergency fund. Start this process by opening a savings account at a bank or credit union expressly for the purpose of putting money away for a rainy day.
Why? Because an emergency fund helps you deal with unplanned expenses (a car repair, for instance), rather than put these expenses on a credit card, or be forced to cut corners or go without. And there’s another benefit: you start saving on a regular basis at a bank or credit union—a healthy habit to develop.
3. Save and invest at least 10 percent of what you make. The easiest way to accomplish this is through an employer-sponsored retirement plan, such as the Thrift Savings Plan. Enroll, if you haven’t already—and contribute at a double-digit level or as much as you can while staying within your budget. Most retirement saving accounts offer balanced funds (stocks and bonds) to help you diversify your investments, and lifecycle funds that help reduce risk as you age.
Why? Because many investment professionals believe that saving 10 percent is the minimum you need to save to ensure a comfortable retirement. Chances are you’ll need to increase the amount you are currently saving. Federal civilian employees automatically deposit three percent of their salary into the TSP (the contribution election can later be stopped, reduced or increased), which is often the norm for many civilian workers, but well short of what is likely needed down the retirement road.
4. Read one book on personal finance. Pick a book that speaks to where you are in your life (for instance, if you’re in your 20s and just starting out, read a book geared to millennials just beginning to save and invest).
Why? Because we all have to start somewhere when it comes to learning about a new subject. Books about personal finance tend to touch on an array of valuable financial areas, from investing to life insurance, and each area is worth learning about. Chances are you’ll find the book far more interesting, and more understandable, than you thought it would be.
Need some pointers on how to get started? Visit SaveAndInvest.org for information geared toward the military. To receive the latest Investor Alerts and other important investor information, sign up for Investor News.