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Creating a Financial Foundation

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  • Creating a Financial Foundation


    Ok I can use some opinions for knowledge....

    What would you say would be a good financial foundation for an individual who is between the ages of 18 and 30 years of age to start reaching financial independence...?

    ex...I have a friend who has very little debt....and is currently managing it. She has started an emergency fund and has Protection(Life Insurance)....but is now wanting to educate herself on Investments(long term)...stocks........makes decent $...

  • #2
    First, does "Protection" mean a whole life policy? Then I would advise her to sell the policy and get inexpensive term life insurance.

    Then with the money she is saving I would advise her to contribute enough to her 401k to earn the maximum matching contribution. Then I would advise her to max out a Roth IRA. If she still has money left over, she can contribute more to the 401k. In both the 401k and IRA I would advise her to choose low cost, diversified, stock index funds.

    That will put her on the path to financial independence.


    • #3
      Its a Universal policy..using it for Protection (life Insurance) as well as potential cash value return tax free..

      thanks for other advice though


      • #4
        I'd want more info. How old is she? Married? Children? What exactly is "very little debt"?

        If she is single (sounds like she might be), I'd get rid of the insurance as there is no need for it if she has no dependants.

        If there is a company 401K with a match, she should be contributing enough to get the full match. If she is able to invest beyond that, she can fund a Roth IRA.

        I agree with sticking with index funds or a target retirement fund.

        As for educating herself, have her visit us here. Other good resources are Money, Kiplinger, Smart Money magazines. Good books are The Wealthy Barbar, The Millionaire Next Door, The Automatic Millionaire, and a few titles by Suze Orman (Young, Fabulous and Broke; Women and Money; etc.).

        * Despite the high cost of living, it remains very popular.
        * Why should I pay for my daughter's education when she already knows everything?
        * There are no shortcuts to anywhere worth going.


        • #5
          Well, for one, I hope she started out at 18 rather than start at 30 like I did. To me, the foundations of financial health is the following:

          1. Genuinely commit to a frugal way of thinking.

          2. Increase earning power.

          3. Decrease living expenses.

          4. Learn to save.

          5. Learn to invest.

          6. Set reasonable goals.


          • #6
            Nice. thanks.

            I say educate her self more. Look into her jobs/employers retirement plan. No what your 401K offers you. Education has always been the wink lnk in the 401K.

            ôSave enough. Diversify Widely. Stick to your strategy. Dont follow the herd..

            The protection (insurance part) is good. Keep it.

            Look into an emergency fund.

            dont create any debt.