Over the Thanksgiving break I became addicted to a show called Till Debt Do U$ Part on HGTV. Financial wizard Gail Vaz-Oxlade helps families go from red to black by getting to the root of their destructive spending habits. Most families on the show did what it took to own a home, but quickly forgot about the money saving principles that got them there. Why work so hard to buy a home, and then dig yourself into debt?
Buying a home is just the first step. Once you become a homeowner you still have to understand how to pave the way to financial security or better yet, financial freedom. This includes a series of building blocks as AXAâ€™s Financial Consultant, Angela M. Bledsoe explained at this week’s home-buyers seminar sponsored by the Bedford Central Community Development Corp.
â€śWhat does financial security mean to you?â€ť is a question that Bledsoe said everyone should ask themselves. â€śA lot of people open different accounts with no end goal in mind,â€ť she adds.
Gaining a firm hold on your personal finances is a key step in preparing for home ownership and essential to keeping your home. Hereâ€™s how you build financial security:
Risk Management. Protect yourself against the unplanned or unforeseen. Look into home, liability, health, and life insurance. These will help protect you and your property in the event of an accident, illnesses, injury, or death.
Cash Management. Direct your money to help achieve your personal financial goals. This includes budgeting, debt control, and facilitating your daily transactions. Take control over whatâ€™s coming in and whatâ€™s going out.
Emergency Reserves. Set funds aside for immediate and unexpected expenses in a money market account, which generally offer higher interest rates. You should have 3-6 months or more of monthly living expenses only to be used for true emergencies.
Accumulation. Save for major purchases by setting goals. Outline your accumulation goals in three buckets: The first bucket consists of your short term goals. These are goals that you want to accomplish within one year and this money should not be tied upâ€”you need easy access to this cash.
The second bucket is for mid-term goals, those you want to accomplish in 2-15 years. This money can be invested in mutual funds. Mutual funds offer diverse investment portfolios, which may help to reduce the impact of stock market volatility. These are a good option for mid-term goals because youâ€™ll have enough time to recover when the market fluctuates.
The third bucket is for long-term goals, those you want to accomplish in 15 or more years. Money to reach these types of goals should be placed in a 401k, annuities, IRAâ€™s. No cash should be in this account. If you are leaving your job make sure you roll over your 401k into an IRA. You donâ€™t want your previous employer in control of your investments, and there are severe income tax consequences for withdrawing the balance of the account prior to retirement.
Retirement. Set up automatic deposits for monies to go into your 401k or 403b, IRAâ€™s, and Annuities. These long term vehicles provide the foundation for retirement.
Legacy. How do you make sure everything is protected for the next generation? Who will get your house? Donâ€™t leave it up to the government to decide. Hire and estate planning attorney and make a will. When you make out your will designate beneficiaries and an executor. The beneficiaries are the people or organizations who receive your property. The executor will make sure that your wishes are carried out.
How will you make sure your legacy is protected? Follow me at www.twitter.com/LaToyaReports
Other posts in The Homebuyers Toolkit series:
LaToya M. Smith is an editorial assistant at Black Enterprise