Retirement is the ultimate financial goal. It means you can hang up your coat and tie for good and live on the fruits of your life's labor. But it’s a long journey to save and plan for retirement, and sometimes there are roadblocks that bar the way. Financial disasters can set you back. But you don't need to let sudden expenses ruin your chances at achieving the retirement of your dreams. The following tips can help you build a disaster proof retirement plan.
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Review your cash flow and budget. It might surprise you that the first step to disaster proof your retirement doesn't explicitly involve investing or retirement accounts. Without a buffer in your monthly cash flow, you will find it difficult to get ahead and virtually impossible to deal with any financial setbacks. If you are living paycheck to paycheck, take a few minutes to go over your budget and look for areas where you can cut back your expenses. Divert the extra cash flow toward increasing your emergency savings or sending more money toward general savings or investing goals.
Eliminate debt. Debt increases your fixed expenses and doesn't give you wiggle room in your budget. You should eliminate as much debt as possible with the goal of becoming entirely debt free, including your mortgage. The end result will be increased cash flow and financial flexibility, making it easier to reach your financial goals and weather any financial storm that comes your way.
[See 5 401(k) Mistakes to Avoid.]
Review your retirement plan. The economy has been constantly changing over the past few years. One of the most important things you can do to combat this is to maintain a proper asset allocation for your risk tolerance and investment goals. While each individual IRA or 401(k) doesn’t need to be diversified, your entire investment portfolio does. You should also take a few moments to review your retirement plan contributions to make sure you are contributing enough to meet your retirement goals.
Protect your biggest asset. Generating income is your greatest asset. Most people generate their income through their career, but some people may generate income from a business, rental properties, investments, or other endeavors. Do what you can to protect and grow your career, such as take career broadening courses or network. Also, try to set up other streams of income outside your job, such as investment or real estate holdings.
Manage risk. Make sure you have adequate insurance coverage, including health, life, home, auto, and anything else that may apply to your specific situation. Insurance can mean the difference between spending a few hundred dollars per month versus a one-time payment of few thousand dollars or more.
Be proactive. Use these steps to examine your entire financial situation and create a financial fall back plan. Disaster can strike at any time. The best thing you can do is have a plan in place if and when it does.