You received your first paycheck — it’s time to head to the mall, right? Slow down there, pardner! Remaining innocent of the finer details of financial management can lead to consequences.
If you’re new to money management, it’s okay to feel intimidated. However, don’t your naivete hold you back from your financial goals. Follow these tips to create the economic prosperity of your dreams.
1. Figure Out a Monthly Budget
“Oh, sure,” you might think, “I have a monthly budget. My paycheck comes in, and it goes right back out for bills.” You’re not alone. Although you might assume middle-class life means having enough to cover living expenses and then some, in this economy, it’s not always the case.
That doesn’t exonerate you from ignorance on where your money goes, however. Only 40% of all Americans bother to keep a budget, but everyone should. Most financial institutions have tools on their websites to help you categorize your expenses. Use these tools to find out where your money goes each month and identify areas where you can cut back.
2. Set Healthy Financial Milestones
What do you want to achieve in your financial future? To turn your dreams into reality, you need to label your goals. Do you want to buy a home? Start a family? Go back to school?
Make sure you follow the SMART goal principles — specific, measurable, attainable, realistic and time-based. You probably won’t save enough to put a down payment on a house in one month, for example. A more realistic aspiration could involve saving 5% of your take-home pay in a fund dedicated to this larger purpose.
3. Save an Emergency Fund
I can’t stress this enough — pretend you’re a squirrel and save, save, save. Most financial experts tell you to hoard between 3-6 months of living expenses in an emergency fund. However, if you’re a gig-economy worker or self-employed, you need more than that. Significantly more. If you get sick or hurt — yes, it can happen — and you lose your livelihood, you need a way to support yourself.
Pay yourself first. Resolve to save 5-10% of your paycheck between socking some away for retirement and keeping the rest in a liquid account. It’s challenging, especially if you’re underpaid — but your future self will thank you.
4. Pay Down Debt
Even if you earn six figures, you can spend more than you make if you carry a lot of credit card and student loan debt. Plus, having debt hanging over your head creates anxiety and keeps you awake at night. Some credit cards charge interest rates of 20% or more. If you only make the minimum payment, you could pay thousands more than necessary.
5. Create a Secondary/Residual Income Stream
Imagine that you drive for Uber for a living. What would happen to you if you lost your ability to drive tomorrow? If you have a significant other or a family member wealthy enough to help you, you’ll likely survive. If not? You no longer have a paycheck, nor can you collect unemployment to carry you over the rough patch.
Today’s economic climate can create significant anxiety. You can calm your fears somewhat by creating a secondary or a residual income stream. Write a book or start a blog. Sign up for an affiliate marketing program. This way, if your regular paycheck dries up and blows away, you have a fallback plan.
6. Insure Yourself
You might think, “I’m young and healthy. Why do I need life insurance when I don’t have children? Why do I need disability insurance when I can run a 5-minute mile?” You’re smart to invest in both for several reasons.
If you opt for a permanent life insurance policy, you build cash value you can borrow. More importantly, your rates remain locked as long as you pay your premiums on time. Your rates increase with age, and you’re not getting any younger. As for disability coverage, one drunk driver or sheet of black ice is all it takes to change your life — permanently. It can take years before social security awards disability payments if they ever approve them at all. How will you live until then?
7. Learn How to Invest
Are you one of the many who fears the stock market? Get over that trepidation by investing in mutual funds if you don’t want to learn the finer points of investing. Historically, your returns keep pace with inflation more effectively when you make your money work for you versus saving it under your mattress.
Master Your Financial Goals Today
Even if you’re a novice, you can master your financial goals. Take some tips from this list and get started today.
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