4 Areas of Finance You Should Be Watching

The stock market can be an indicator of how investments in the economy are doing. However, the stock market’s performance doesn’t necessarily reflect all areas of the economy or individual financial situations. As a result, there are several other areas to pay attention to.

Things like alternative investments, insurance protection, and credit building have little to do with the NASDAQ or the S&P 500. Strengthening your individual situation involves looking at five key areas: savings, financial protection, tax planning, investing, and retirement planning. Within each of those spaces are some pivotal steps or strategies to consider. Here are four of them.

1. Alternative Investments in Retirement Portfolios

Many individuals contribute to some form of a retirement plan. Whether it’s a 401(k) through an employer, an IRA, or a self-employed option, people’s contributions go into different assets. Some choose to invest more in bonds and others in stocks. Others prefer a hands-off or automated approach with mutual funds designed for specific retirement windows.

These funds typically adjust your portfolio’s allocation based on how many more years you’ll be working. More of your portfolio’s mix will go toward stocks the further out you are from retirement. As that time inches closer, more of your allocation will lean toward conservative investments like treasury bonds.

However, conventional allocation methods and investments are no longer the only options. Alternative investments, such as cryptocurrencies, can help diversify a 401(k) or IRA. According to Rocket Dollar, anything from real estate to precious metals to commodities futures can be part of your portfolio. So long as the IRS doesn’t forbid an asset, and it aligns with your goals and risk tolerance levels, that asset is fair game. 

2. Insurance Protection Beyond the Basics

If you want to drive a car, you have to take out insurance. That rule applies whether you buy that vehicle outright, finance it, or lease it for a few years. That insurance is there to protect you, your lender or lease company, and other drivers. The same standard applies when you buy a home. Your lender requires you to take out a homeowner’s policy in case disaster strikes.

But beyond mandated policies, there is coverage and protection for things you may not be thinking about. Accident and long-term care insurance are policies that can supplement life insurance. If you don’t have life insurance through your employer or a private policy, you should seriously consider getting it. Even if you don’t have dependents, life insurance can help surviving family members settle your debts. You can also borrow against a whole life policy during emergencies.

Accident and long-term care policies supplement life insurance protection if you sustain serious injuries or disabilities. Accident insurance covers medical treatment costs and income losses. Long-term care insurance covers healthcare expenses related to a permanent disability or chronic illness, such as dementia. These policies can ensure your needs are met and your family or caregivers aren’t financially overwhelmed.

3. Building Credit and Reducing Debt

Debt might seem like a fact of life. However, accumulating too much of it or not paying it off as promised can tarnish your credit history. Credit building doesn’t stop or end with your first credit card or loan. It’s something you should keep your eye on as part of your long-term financial strategies and habits.

Poor payment history or dings on your report can stop you from achieving your goals. They lower your credit score and can make you appear unreliable to future lenders and employers. You can face roadblocks when it’s time to take out a mortgage, get a car loan, or switch jobs. Besides payment history, your debt-to-income ratio is an influencing factor for your credit score.   

Your debt-to-income ratio is how much you owe divided by your take-home income. Some mortgages will allow up to a 43% debt-to-income ratio, but more conventional loans will stop at 36%. Some experts recommend keeping your debt below 30% of your income.

However, others take a more aggressive stance and say to aim for 15% or less. Paying off and limiting debt does more than boost your credit score. It gives you more liquidity and money for savings and other obligations like taxes. Most of all, having fewer debt obligations helps you avoid them in the first place. You can save up and pay cash for bigger purchases like vehicles.

4. Saving for Everyday Expenses and Emergencies

Another fact of life is that it costs to live. Everyday expenses like filling up the tank at the gas station and getting groceries are sometimes easier to manage. These costs tend to be smaller than rent or a mortgage and often represent short-term budget needs. Yet common expenses like a new home or car, home improvements, and college funds are more challenging to plan for.

These costs may exist in your future, and things will probably change between now and then. People often don’t think about how to pay for future expenses or emergencies until they happen. Coming up with a savings plan and building a cushion enables you to prepare for the unexpected. Liquid funds and savings accounts also make it easier to afford major purchases when the time comes.

Aim to build up an emergency fund with a minimum of three to six months’ worth of expenses. Self-employed or risk-averse individuals might want to save more — say nine months to two years of monthly living costs. Investing in liquid funds and CDs will also allow you to save for emergencies or to pay down debt like mortgages sooner.

Watching Your Finances

A complete personal finance strategy is about more than tracking the performance of conventional investments and the stock market. While stocks and bonds can help you build wealth and save for the future, so can other financial strategies. Alternative investments, insurance protection, debt reduction, and liquid savings balance your approach. You can create a healthier financial situation by paying attention to these four facets.        

This is a Contributed Article

Jessica Weisman-Pitts