Preparing Your Financial Future, From Now To Forever
How do some people seem to have their head so screwed on when it comes to finances and others are just moving from paycheck to paycheck without much direction? They may be working the exact same job and have the exact same costs, but one can turn the situation to their advantage and the other simply flounders. It’s all down to the plan. We’re going to take a look at how you begin to really plan what you do with your money and which plans can guarantee a safer, more comfortable future for you.
Rule number one: don’t procrastinate
This is the most important piece of advice at all. It doesn’t matter how much you make, you should be able to put aside even just a few dollars every paycheck. More than able, you should ensure that you’re doing it. Find how much you’re able to set aside and get in the habit of “paying yourself first”. This means putting aside the money you’re dedicating to your future financial goals instead of just leaving it in the bank account with the rest of the money. Otherwise, it’s all too easy to just leave it there until you’ve blown through it with the rest of your spending. The sooner you get your plans off the ground, the sooner you can benefit from them.
Set your goals
But what are you setting money aside for? We will get to the specifics of what they could be a little further down in the article, but the act of goal-setting, measuring and managing your progress towards those goals is an essential talent. First of all, this means learning how to budget. There are plenty of tutorials on budgeting, and even a few guidelines to follow. Many will follow the 50/30/20 rule. That means 50% of your income is set aside for essential expenses like rent, loan payments, groceries, utilities and so forth. 30% is set aside for discretionary spending (because you can still have fun while you spend), and 20% is set aside for your financial goals. It can be 10% or even 5% if you can’t afford to set 20% aside. The important thing is that you’re setting goals and creating budgets that help you take a step closer to them every time you get paid.
Improve your means then live beneath them
Building upon your career is important. Not just because it gives you access to more income, it’s a good way to fulfill yourself and make sure you’re not stuck in one work situation for too long. But just as important as improving your income is learning not to increase your spending every time you get a pay raise. Learn to delay your gratification and opt to live beneath your means even as those means improve. For instance, could you stand to increase both your financial goal budget by 10% instead of your discretionary spending? You can improve your means by finding other ways to make money on the side, as well. For instance, making money online through freelancing, filling surveys, or reviewing sites.
Know yourself, know your money
The budget does one other particularly helpful thing, it forces you to take a look at where you’ve been spending your money in the past. Nothing can help you realize bad financial habits quite like taking a fine-toothed comb to your past bank balances. Can you see some habits, like going out to buy coffee every day, or frequent trips to the grocery store, that add up to quite a lot of lost income? Learn what your impulses are and be mindful of them. Keep looking over past bank statements and see what kind of progress you’re making on them. By being more aware of your impulses, you’re a lot more likely to curb them.
You never know when you need to borrow
In a perfect world, you only ever need to spend what you make. However, we don’t live in a perfect world. Big expenses like a home, a car, even starting a business might become more important as time goes on. Or you have sudden expenses like car repairs your insurance won’t cover entirely. Rather than dipping into your finances, it’s a good idea to keep your credit in good health so you can borrow when you need to. If you’re using credit cards and racking up more debt than you can handle, it’s time to scare some sense into yourself.
Don’t just save, grow
You will have your savings for short-term financial goals, such as getting out of debt, and you will have savings for longer-term solutions, like increasing your wealth. For the latter, saving isn’t the only option. You should instead look at the possibility of making investments. Anyone can start making investments, even if you don’t have a lot of capital. Most wealthy people will tell you that savings and your job won’t make you wealthy, it’s almost always down to investing. Get your money working for you, start building an investment portfolio. Make sure you diversify, investing in different markets, too. That way, if one market takes a hit and you lose some money, you’re insulated by the other markets you’re in.
Where’s your retirement fund coming from?
You might be fresh out of college and far from thinking about your retirement. However, the sooner you start contributing even a little towards it, the easier it’s going to be to live more comfortably. In most cases, it’s recommended you pay as much into retirement as your employer can match. If you’re a little older, you can think about pumping up that fund even more with some help from a checklist for retirement. For instance, think about the potential of downsizing your home in the future. When your family is no longer all living with you, selling and moving into a place that’s less costly in the long-term can make those twilight years all the easier. The retirement age keeps increasing and if you don’t want to be working until you’re physically no longer able to, then the sooner you start planning for that eventuality, the more likely you are to have a retirement that you can actually enjoy.
Protect your finances
As for the short-term savings goals you should be thinking about, the first thing worth doing is protecting your finances. There are a lot of ways to do it. For instance, you might want to think about purchasing insurance for your home and your contents, and even your income in the case of injury or disability since employers won’t always guarantee that protection. Setting up an emergency fund can give you some wiggle room to deal with a financial crisis without having to immediately borrow, too. If you don’t set up any safeguards between your finances and the twists and turns of life, it’s all too easy to find it necessary to dip into your savings.
How do you handle things at the end?
It’s the far future, surely, and some people might think it’s a little morbid, but if you have a family, you need to think about what’s waiting for them when you’re no longer there with them. As soon as you have any wealth or assets that could be substantial, think about planning your estate. What’s more, the sooner you pay into life insurance, the cheaper it’s going to be. Even if you don’t have a lot to offer them, you can at least make sure your family isn’t being put out of pocket with funeral arrangements and other expenses. Ease their financial anxiety and your own sense of burden by making sure that doesn’t happen.
So, you have your goals set, You want to start investing, build up some financial safeguards, contribute to your retirement, set up protections for your family, and so on. You have the budget to help you get there and you are starting to look more seriously at your impulse spending. How do you make sure you don’t fall off the wagon? You can start by automating some of your payments. If you ensure that your “pay yourself first” slice of the budget goes out as soon as you get paid, you’re less likely to miss it. But otherwise, pay attention to your goals and your spending with money management software. The more attention you pay to what you’re actually doing with your money, the less likely you are to slip up and miss a payment or miscalculate your spending. Set up a “money day” each week that takes a look at your overall budget. Set weekly reminders on your phone so you have no excuses for forgetting your money day, either.
It’s not easy. It takes work and it takes a little self-education to really make your plans come to fruition. But the truth is that you’re very likely to get financially independent just by working your behind off. You need to do a little fiscal fiddling behind the scenes, and the right plans can make it all a lot easier.