With planning, you can make the most of your income, avoid waste and enjoy true financial security.
For most of us, life revolves around family, work, home and health. Similarly, the aspects of your financial life that need your attention are obligations (today's bills), long term planning (for retirement and savings goals), and avoiding waste that could prevent you from reaching those goals. Here are 5 tips to keep in mind as you manage your financial life.
Prioritizing is the key to success with short term obligations.
Make loan payments, pay bills, and take care of true necessities first. Keep the lights on. Next, pay yourself. That means setting aside a planned amount each month or from each check — consistently. The remaining amount can then be set aside for optional, variable expenses.
By distributing your income in that order you'll avoid money drains like late fees and have funds set aside for anticipated expenses such as a tax bill or home repair. You'll begin to build an emergency fund and still have some discretionary money. As the saying goes, "You can have anything you want in life. You just can't have everything you want." Choose long term success over impulse buys and make careful decisions about what's most important to you.
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Write it down.
Whether you prefer a detailed running ledger or a simple checkbook register with each day's payments and expenditures, put it on paper or consider using one of the personal finance tools available online, such as Mint or BudgetSimple. Budgeting is an unappealing concept to many, but it needn't be. It's a ticket to security and peace of mind.
You're in it for the long run; you might as well be ready!
- Retirement savings comes to mind first when people think of long term planning. If your employer offers a 401(k) with a match, a top savings priority would be to contribute at least up to that match amount. Also consider setting up a Roth or Traditional IRA. The benefits are two-fold; you'll have those funds to use later (letting compounding work its magic) plus, pre-tax contributions reduce your taxable income. Tax savings are very real savings! Living even just a little below your means now can pay off big later.
- Include plans for mid-range goals as well, such as paying cash for your next new car. The savings in finance charges is cash in your pocket. If your current vehicle is sound, you can save serious money by keeping it long enough to pay it off and a few years beyond, then setting up automatic savings in the amount the car payment was. You won't miss the money in your daily life and you can use those savings for repairs to extend the vehicle's useful life and/or as a down payment (better yet, payment in full) for the next vehicle you'll need.
- Many financial advisers suggest that parents fund their own retirement rather than paying for their child's higher education. After all, there are loans to pay for education, but there are no loans designed to support you in your later years.
- Educate yourself. Choose your sources carefully, but take advantage of some of the sites available to learn about investing and budgeting, or just as inspiration to stay the course. MSN Money and WiseBread are two that might be helpful to you and there are many others.
You work hard for your money. Keep it!
Over-dependence on convenience services and miscalculations can both be costly and really add up.
- Avoid non-sufficient funds fees by keeping careful track of your account balance with a checkbook register.
- If you use a credit card for day-to-day expenses, if at all possible, pay it off entirely each month. That way you get the benefit of points or cash back and still avoid finance charges. SVFCU Visa credit cards accrue no finance charges at all when paid in full each month. If an unexpected expense comes up and you need to carry a balance over from one month to the next, move paying it off up on your list of priorities. Don't have an SVFCU Visa? Apply for one today.
- Parking tickets? Daily lattes? High premiums on auto insurance thanks to a less-than-stellar credit rating? There are better ways to use your money and with a little planning most, if not all, of the leaks in your financial canoe can be stopped.
- Watch your money. Tune in to your 401(K) and pay attention. Fund information is readily available; watch performance information and consider investing in a range of fund types. Maximize your IRA contributions if you've chosen a Roth or Traditional IRA, but don't contribute more than the maximum allowable — that can lead to penalties.
You don't have to become a multi-millionaire to have wealth. It's more a matter of reliably having enough to satisfy true financial needs with some to spare. In fact, people who throw money around on the superficial trappings of wealth often end up with the least. Building financial security begins with arranging your life to maximize the income you have and in finding ways to both bring in extra money or reduce expenses. It's about saving a portion of every check, borrowing at lower interest rates thanks to your good credit, and giving thought to the budget 'big picture'. You can build wealth, and the best tool to get you there is a plan.
"Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones." Benjamin Franklin
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