Building a Strong Financial Foundation: Saving, Investing, and Retirement Planning

Everyone knows that money doesn’t buy happiness, but it certainly doesn’t hurt.

If you want to live a comfortable lifestyle all the way into retirement, you’ll need to start building a solid financial foundation. This doesn't mean you have to have excessive wealth; it means having financial stability to not worry about the little expenses in life. A solid financial foundation is built on the back of planning, saving, investing, and preparing for life after work. If all of this sounds like an unachievable task, we’re here to walk you through it. 

What is a Financial Foundation?

A financial foundation essentially makes way for your lifestyle. It’s determined by your practices and habits that contribute to your financial well-being. 

An easy way to understand it is by comparing it to a house’s foundation - it takes strong materials to build a house from the ground up. When it comes to your financial foundation, the building blocks are made up of saving, spending habits, and budgeting, which all come together to support you in the present and future. 

According to Forbes, around 44% of Americans failed to build a stable financial foundation in 2018 because they couldn’t afford to cover a $400 emergency. In most cases, having a poor financial foundation stems from not being taught the basics of planning and managing money, which is something that should be mandatory in the education system.  

Budgeting and Saving

To hop onto the road to having a positive financial foundation, you have to master the art of budgeting. All you need to do is create a list of all monthly outgoings and deduct them from your income.  The money you have left over is available to invest, save, or spend on a few luxuries here and there. By having a budget and sticking to it, you can avoid getting into uncontrollable credit card debt. 

To avoid spending your additional money, we recommend opening a savings account, which will allow you to put money aside for short-term spending like going on holiday, home renovations, or buying a car. 

Investing

When you’ve got a respectable pot of additional money, it’s time to consider investing to build passive wealth. There are many different investment types, so you’ll have to decide what works best for you. 

The most common and well-known investment options are stocks, which come in all shapes and sizes. They allow you to own a small share of a company and earn a profit when the value goes up. Within stock investing, there are even more strategies and choices to consider. For example, will you buy income stocks like dividends or explore popular current growth stocks, which are investing in companies expected to explode well above the market average? 

Retirement Planning

Although many people don’t like thinking about old age and retirement, it’s coming for you anyway, so you may as well be prepared. A strong financial foundation should involve a 401(k) plan, which you can access through your employer. Alternatively, you can choose to open a Roth or Roth IRA. 

The traditional 401(k) lets you bring down the amount of tax you’ll pay by contributing before you’re taxed. On the other hand, a Roth contributes to your plan after your income has been taxed. Even though the traditional may sound better, the Roth lets you access tax-free reductions during retirement. 

There’s a wealth of information online for building a solid financial foundation, and it’s well worth researching more. However, if you’re just getting started on your journey to financial security, the information in this article will be more than enough to point you in the right direction.