From setting up your first bank account to retiring, this article will outline the top 18 financial life milestones and the potential pitfalls associated with each.
Financial life milestones vary from one person to the next depending on needs, goals and family scenarios. However, understanding the main milestones, and the considerations and risks associated with each, can help ensure a secure financial future. From setting up your first bank account to retiring, this article will outline the top 18 financial life milestones and the potential pitfalls associated with each.
1. Opening your first bank account
Opening a bank account is an important and exciting milestone in your financial life. When picking a bank and setting up the account, there are a few considerations to keep in mind. First, make sure you are aware of the fees associated with the account, including fees for deposits, withdrawals, and account maintenance. Additionally, check if there are any minimum deposit or balance requirements, or any other restrictions on the account. Finally, always keep your personal information and passwords safe and secure.
2. Opening a credit card
Opening a credit card is a major milestone that should not be taken lightly. Before opening a card, make sure you understand how credit cards work, the interest rate and annual fees associated with the card, and any additional fees associated with payments and cash advances. As with any financial tool, be sure not to overuse the card and always make payments on time.
3. Creating a budget
Creating a budget is an essential financial life milestone. This will help you to track your spending and ensure that you are living within your means. A good budget should include both short-term and long-term financial goals. Make sure to be realistic when creating your budget and to account for unexpected expenses.
4. Investing
Investing is a great way to grow your wealth over time, but it is important to understand the risks associated with investing. Do your research and make sure you’re comfortable with the investment before committing to it. It’s also important to have an understanding of the fees and taxes associated with investing, and to have an emergency fund set aside in case your investments don’t work out as you had hoped. As a rule of thumb, always invest money you can afford to lose.
5. Saving for retirement
Saving for retirement is a crucial milestone in your financial life, and the earlier you start, the better. Start with small contributions to a RRSP - or 401(k) in the US - and consider working with a financial adviser to ensure your funds are allocated in the best way for your long-term financial success. Be aware of the fees associated with retirement accounts and the potential tax implications as well.
6. Buying a car
Buying a car is a major financial milestone. As with any big purchase, it is important to do your research and compare deals. Consider the cost of fuel and ongoing maintenance, as well as the insurance payments associated with the car. It is also important to remember that a car is a depreciating asset, so keep in mind that it most likely won't appreciate in value over time.
7. Purchasing a home
Buying a home is one of the biggest milestone, and one that requires careful consideration. Make sure you are aware of the costs associated with the home, including mortgage payments, taxes, insurance, and maintenance expenses. It is important to also ensure you have a good credit score and the resources necessary to make a down payment and cover the closing costs.
8. Protecting against fraud
Fraud prevention is essential in order to protect your finances and secure your financial future. Make sure you are aware of the latest scams and fraud schemes, and always make sure to check your credit report regularly. Additionally, make sure to secure your online accounts with strong passwords and two-factor authentication.
9. Saving for college
Saving for college is an important financial life milestone. If you have children, consider setting up a RESP plan - or 529 plan in the US - to help them achieve their education goals. Make sure that the plan is properly invested to ensure that the funds are growing over time. Always be aware of any tax implications associated with college savings plans.
10. Starting a business
Starting a business is a rewarding and potentially lucrative financial milestone, but it also comes with its own set of risks and considerations. Take the time to research the type of business you’re considering and make sure that you understand the legal, tax, and accounting requirements associated with running a business. Additionally, ensure that you have the necessary financial resources to cover start-up and ongoing costs.
11. Getting insurance
Insurance is essential for protecting against the unexpected. Consider what type of insurance makes sense for your current financial situation and research the coverage and costs associated with your desired policy. Also, make sure to shop around and compare quotes so that you can get the best deal. As you go through life and achieve new milestones, it is crucial that you take the time to review your current policies and ensure that they meet your new reality.
12. Saving for a rainy day
Having an emergency fund is a major financial milestone that can help to prevent against financial hardship. Make sure to set aside a portion of your income each month and put it in a separate account that is easily accessible. You might want to consider opening a TFSA with a low risk portfolio. Consider what would constitute an emergency and make sure you have enough stashed away to cover those costs. Generally, it is recommended to set aside enough money to cover 3 months of expenses.
13. Investment planning
Investment planning is a key financial milestone that can help to ensure your financial security. Work with a financial adviser to do a thorough review of your current investments and financial goals. Make sure you understand the fees associated with the various investments and always ensure that you are comfortable with the risks associated with any investments.
14. Reviewing your will
Reviewing your will should be taken very seriously. Make sure that your wishes are clearly outlined in the will and that you have considered alternate scenarios that could affect the will. Additionally, make sure to understand the tax implications associated with the will and ensure that your executor is aware of their responsibilities. If you are in a relationship, it is as important to ensure your partner's will is up to date.
15. Building good credit
Having a good credit score is essential for achieving financial success. To build your credit, start by making sure all bills are paid on time and in full, keeping your credit utilization low, and monitoring your credit report regularly.
16. Estate planning
Estate planning is an important financial milestone that can help to ensure your wishes are followed after you’ve passed. Work with a financial adviser to ensure that your estate plan is up to date and fulfills all of your desires. Make sure to understand the tax implications associated with your estate plan as well. Consider how you want to structure your legacy and how it can help your loved ones.
17. Reducing debt
Reducing debt is an important financial milestone that can help to improve your financial standing and make it easier to pursue other financial goals. Research ways to help pay down your debt, such as balance transfer credit cards or debt consolidation. Be sure to make payments on time and in full to protect your credit score and ensure that you don’t accrue additional interest.
18. Downsizing
Downsizing is an important life milestone, and one that can bring significant financial benefits. Consider your options and what would be the most economical and practical, such as renting out a portion of your home or selling it and downgrading to a smaller one. Make sure to understand the income gleaned and any tax implications associated with the downsizing process.
These are just a few of the most common financial life milestones that everyone should be aware of. Understanding the considerations and risks associated with each of these milestones can help to ensure a secure financial future. From opening a bank account to leaving a legacy, it is important to take the time to understand each milestone and plan accordingly.
