Set Clear Financial Goals
If you don’t have a specific destination to work towards, it can be difficult to find the passion or motivation to save. Whether it’s a house you aspire to or your retirement, carefully defining these goals and knowing how much you’ll need to save can help you create a plan to reach them.
Start as Soon as Possible
Have you heard of the power of compounding? This process allows interest on your savings to earn even more interest. The earlier you start saving for retirement, the more time you will have for your money to grow and benefit from compound interest. Time is truly the key element of your investments, so waiting just a few years to start saving can significantly reduce the size of your retirement savings.
Spend Less Than You Earn
This seems to be one of the simplest rules of personal finance to follow; however, it can be one of the hardest. It is all too easy in a consumer-driven society to live beyond your means; a good rule of thumb is to try to save at least 15% of your income. If you find it easy to spend more than you can, try paying for things like clothing and groceries in cash instead of using a credit or debit card. Withdrawing a set amount each month helps you become more conscious and make better spending decisions. If you cannot commit to saving 15% of your income at first, decide how much you can save. You can set up an automatic transfer for those savings to move money from your checking account, thus eliminating the urge to spend it.
Create a Budget
Budgets play a critical role in paying off debt, controlling spending, and staying on track toward your goals. It’s easy to overspend a little extra on some days compared to others, but if you have a budget or monthly and daily spending limits, you will be able to adjust and make up for any overspending on another day.
Put Your Savings on Autopilot
You have the ability to automatically deduct your contributions to savings from your paycheck through a 401k plan and/or direct deposit to a brokerage account. If you set money aside before you even see it, you are likely to not feel its absence.
Always Take Advantage of Free Money
If your employer offers to match a percentage of your contribution to a 401(k) plan – and many companies do – take advantage of this benefit by contributing the maximum allowed. An employer who offers to match your contributions usually does so between 3% and 6% of your annual salary. So, if you earn $50,000 and your employer matches your contributions to a 401(k) plan up to 5%, be sure to contribute $2,500 over the year. You should not ignore free money – it will help your savings grow faster.
Don’t Overspend on a Home
Be cautious not to overspend when shopping for a new home. A large mortgage payment can impact your savings. Try to think about what you truly need from your home so that you have the freedom to spend on other necessities.
Protect Yourself
A complete financial plan includes savings to protect your life and future. Life insurance and estate planning are essential to ensuring that your obligations to your loved ones are met even after you’re gone. Start shopping for life insurance as soon as possible if you don’t already have it. Once that’s done, set up your will and submit it. You can use a lawyer or an online legal service like LegalZoom.com.
Don’t Let the Financial World Intimidate You
It has been noted that 80% of personal finance is not financial education, but rather financial behavior. If you can modify your financial behavior, you can modify your financial future. Contrary to popular belief, you don’t need to be a stock market expert to start saving for retirement or preparing for emergencies. All you really need is to work on building a solid plan and sticking to it.
Source:
https://www.thebalancemoney.com/financial-lessons-working-adults-should-learn-4121107
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