It can be scary and overwhelming to think about the future, but it’s necessary when it comes to your personal finances. You might be starting your career or going in a new direction and not know where to begin. Set your future up for success by knowing how to secure your financial future.
Create a Budget
The first part of any financial plan is creating a budget. This means being realistic about the money you are making, considering all your monthly expenses, and figuring how much you should save. Holding yourself accountable to your budget is a great way to put yourself in a good financial situation. You can also adopt a method like the 50/20/30 rule to help. This method allocates 50% of your after-tax income to your needs, 30% to your wants and the remaining 20 to your savings. For millennials and for people living in areas with a high cost of living, this may be challenging. My recommendation is to keep the 20% savings; personally, a portion of my after-tax income goes to charitable donations and the remaining is for living expenses.
Differentiate Wants vs. Needs
As you start to earn more money throughout your career, you need to differentiate between wants and needs. Spending money on unnecessary items can put you in financial trouble, so figuring out what’s worth an investment is key. Consider the use of an investment long-term and if the money you are putting down is something that won’t set you back. For example, will buying a new $150 jacket today help you in any way financially in the future or set you back? Maybe, you are in a position where $!50 won’t hurt you. However, if the opposite is true, think before you make this type of purchase.
Get Rid of Debt
A college education is an important achievement to have in today’s world, but it can also start us off with thousands of dollars in debt. Today, it is one of the most crippling debts that people encounter. Your goal should be to find ways to diminish it as soon as possible.
There is also credit card debt. Today, in the US, the average credit card debt per household is well over $6000. I am very glad, years ago, I made the decision to not fall into that category. The best thing you can do for your financial future when it comes to debt is figuring out how to pay it off over the next few years without drowning in interest rates.
Plan for Retirement
Retirement might seem like a long way away, but it’s never too early to start planning. If you are with a company that has benefits, then you might have the option to match a percentage amount offered with a 401k plan. If you are self-employed, then you should consider opening an individual 401k.
Have an Emergency Fund
The final tip on how to secure your financial future is to set up an emergency fund. Today’s circumstances prove that you never know what life might throw your way. Setting up an emergency fund will keep you afloat when times get tough.
When it comes to finances, thinking about it early on is the first step toward security. If you want more guidance, you can always speak with a financial advisor to find out the best direction for you.