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All Young People Should Learn These 6 Money Tips

All Young People Should Learn These 6 Money Tips

In today’s world, one of the most important things a younger person can do is start to learn how to manage their money wisely. It is too easy to get buried in debt, and it seems almost impossible to get out of it. By checking out these 6 tips, you can get yourself on the right track to financial peace of mind.

1. Create a budget, and stick to it!

You will see this tip on any blog you read, and there is a good reason for that. Make sure you actually write down your budget, and prioritize everything. This may help you keep from dipping into your bill money or your savings account. Another tip you can try is to over budget if you can. This way, if something unexpected happens, you wont have to go over your budget, but if there are no surprises, then you have extra money left over.  For more tips on budgeting, check out MintLife Blog.

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2. If you don’t have a savings account, then start one.

Its very important to have a savings account for emergencies. I was always taught to try and save up at least 3 months worth of pay, just in case you lose your job, or have to take time off. I understand its hard to just stash that much money away all at once, but a little money here and there can really add up. One easy way to build your savings without even noticing is to have an automatic transfer set up from your checking to your savings. If you have direct deposit, then you can have, for example, $25.00 switched out automatically, and you hardly notice. For more information about savings accounts, click here.

3. Beware of Credit!

Credit is such a powerful tool to use in the financial world and can really help you when purchasing a new vehicle or home. It can also be fatal to your finances. According to research done by Debt.org, the average credit card debt of young people between the ages 18-34 ranged from $3000-$5200. In today’s world, they make it too easy for people to get a credit card or some kind of “buy now, pay later” deal. While it may sound like a good idea at the time, it is what really hurts people years down the road. People think they have all the money in the world and swipe that card like they will never have to pay it back when, in reality, they do have to pay it all back, plus interest. If you do use credit, make sure you have the cash to back it up.

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4. Live within your means.

Try to keep your cost of living below how much money you actually make.  Suze Orman, a financial guru also suggests cutting your spending by 10%. By doing this, you will end up with extra money at the end of the month even after all your bills have been paid. This also means that if you get a promotion and a raise at your job you should try to continue to live the way you have been before. This means you will have even more money to save at the end of the month. If you unnecessarily increase your cost of living and you lose your promotion and raise, you just might not be able to afford everything anymore. So its best to just play it safe.

5. Invest in your retirement.

If you start putting money into a 401k or an IRA while you are still in your 20’s, you will have contributed more money overall than you would have if you started in your 30’s or 40’s. This also means your retirement will have had more time to collect interest and make you more money. If you want to learn some good tips on how much you should contribute, check out this link.

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6. Invest in health insurance.

Health insurance is a must. If you don’t get it through your employer, you should try and get it from somewhere else. According to a survey done by The Common Wealth Fund, nearly 2 out of 5 adults between the ages of 19-29 where without health insurance for all of 2011. Sixty percent of those claimed to have not gotten needed healthcare because of their inability to pay, and half of them reported problems paying medical debt (see more at The Commonwealth Fund website). If you have some sort of coverage, you can drastically reduce the cost of medical bills and keep yourself out of debt in the unfortunate event that you need to seek medical care.

Keep these 6 money tips in mind when managing your finances. You will be a lot better off in the long run if you take control now, rather than being at the mercy of debt collectors!

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Featured photo credit: http://pixabay.com/en/users/itkannan4u-151888/ via pixabay.com

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Last Updated on September 2, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

    Reference

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