When explaining to people, especially millennials, that it will take discipline in their finances to achieve stability, some of them tend to cringe. The truth is just like it takes effort, discipline in consistency in any other worthwhile endeavor, being secure financially doesn’t happen by accident. In the past couple articles, we looked at investing, a way to create residual income for the future. In this article, we will get back to the basics. Securing your financial future doesn’t need to be difficult but it is simple, and you don’t need to compromise the life that you are living now either. In fact, with these top tips, you can be sure to help yourself more than ever before without any additional stress.
Track your Expenses
The first thing that you need to think about is your expenses. How much do you spend every month? If you don’t know this number, then you simply can’t budget. If you have enough disposable income, the goal is not to write down every penny that leaves your pocket. Put in a place a technique (apps, budgets, etc.) to keep track of your expense. When you realize how much you may be spending on frivolous things, you will be amazed and astonished. Creating a budget will really help you to make any expenses that you have much more manageable and it will also help to give you the peace of mind you need. Why? A budget is like a GPS when you’re lost. Although you may not know where you are or how to get back on your route, the GPS simply directs you back. A budget will also help you to identify any negative spending habits that you might have so that you can adjust your habits.
Need or Want
What is your motivation for buying things? It’s so important that you distinguish between your needs and your wants, as this will really help you to improve your finances. This is a very important step when it comes to reducing the amount of debt that you have now, and even in the future, or increasing your savings. Some debt may unavoidable. I’m thinking of a house mortgage, maybe a car loan or even a student loan for some. Yes, they may be unavoidable but be wise in their timing. Beware of credit cards, loans and other types of credit accounts.
Personal Balance Sheets
A personal balance sheet will give you a good idea of the financial situation that you are in right now. The first thing that you need to do is calculate your assets. This can include your checking or even your savings accounts, your belongings and any investment accounts you own. You then need to calculate your liabilities, such as your credit card, your car loan and mortgage. Subtract your liabilities from your assets to obtain your net worth. Ideally, you want your net worth to increase with time, so do keep that in mind when making major financial decisions.
It’s always helpful to have an emergency fund. This will eliminate the need to borrow money during any unexpected life events. Your emergency fund should consist of up to 6 months to a year of living expenses, in case you lose your job or even if you experience the unexpected such as a medical emergency. You need to keep this in a savings account and you also need to make sure that it is separate from your other debit accounts. Start where you are or can, and then gradually work towards your goal.
You might think that investments are only important to entrepreneurial types who are looking to increase their wealth or start their own businesses, but that isn’t true. Investing is something that people of all financial situations should consider doing as early as possible in life. The earlier you start, the more wealth you’ll accumulate for your future. A lot of millennials are not thinking about retirement yet, but we should all keep it in mind. You’ll be glad that you made such smart investments in the future.
You need to take the right steps to make sure that you are going to be comfortable when you retire. What are your options? I recommend not delaying a bit and having a conversation with your banker. You might learn something new as I did of the option of an annuity loan just recently. Even though it was not of interest or something I needed, I was still glad I added new information to my knowledge. You need to be familiar with the retirement offerings that your company can offer, and you also need to make investment choices that are really going to benefit your long-term future too. By doing this, you can then help yourself to be more comfortable in your later years.