The best time to start planning for your financial future is when you’re just starting out. But the second-best time to start is right now. Yesterday is best but today will always be better than tomorrow. Unfortunately, for many adults, knowing where to start isn’t as easy as you’d think. Here at Virtus Wealth Management, we want to help you get on the path to your financial goals. We’re offering financial planning tips that we think everyone should know and understand.
Financial planning should be taught in high school and college. The unfortunate lack of education in these departments leaves many people unclear on how to manage their personal finances, invest, save for retirement, apply for a personal loan or a credit card, and stay out of crushing debt. Some states are starting to implement classes to cover these subjects, but what happens to the rest of the population that already missed out?
These financial planning tips are a great place to start when it comes to understanding your finances and planning for the future.
How to Start Saving and Investing in Your Future
These personal finance tips will help you live your best life. Take a moment to read through them and think about what you want for your future.
Some people learn self-control as children. Others aren’t so lucky. However, the sooner you learn how to operate within the confines of self-control, the better off you’ll be. We’re a society of instant gratification. And, now more than ever, it’s easy to get what we want, when we want it. But doing so isn’t always a good idea.
Rather than purchasing an item on credit, it’s better to save up for what you want. When you use credit, you’re spending your future income and you’re paying extra for the luxury. That pair of shoes could be costing you much more than the sticker price if you pay for it with a credit card. In most cases, it’s better to wait until you have the money on hand to pay for the item you want. Debit cards are just as convenient as credit cards but save you from paying interest on what you purchase.
Using credit cards and paying them off before interest accrues is a good way to build a great credit score. Some cards even offer appealing perks. They can also be handy in those rare emergency situations. However, it’s vital that you pay off your balance before it has a chance to accrue interest, or you’ll find yourself giving away more of your hard-earned money.
2. Controlling Your Financial Future
When you don’t take the time to learn how to manage your money, other people will find a way to do it for you and they may not have your best interests at heart. Only take financial advice from a reputable financial advisor. You can also read personal finance books, but make sure the author has the credentials to support their claims. Once you understand the basics make sure you implement them into your lifestyle. Otherwise, you’ll waste that knowledge and your money.
3. Understand Where Your Money Goes
The first step to financial freedom and maybe the most important personal finance tip is to make sure your expenses don’t exceed your income. The best way to do this is to create a budget, either using a budgeting app, tool, or even good old-fashioned pen and paper.
Begin by tracking your income and expenses. You want to include everything. It’s amazing how quickly a daily run to your favorite coffee shop or drinks at your favorite bar adds up. Once you see what you’re earning and spending throughout the month, you’ll start to see where you can make small changes to save money. We’re not talking about life-shattering changes. Just small adjustments such as making coffee at home the norm and coffee shop visits an occasional treat or having fewer drinks when you go out with friends. These small changes add up over time. Depending on what you’re able to cut out, you may even feel as though you’ve received a raise.
In addition to looking for these small changes, you’ll want to see how you can reduce your recurring monthly expenses. You may live in an apartment complex with all the perks, but do you really use the gym, pool, or spa enough to account for the extra amount you’re paying for rent? Making smart choices that still work for you but save money will give you a better chance of reaching your financial goals down the road.
4. Build an Emergency Fund
Everyone should have a little money stashed away for a rainy day. As tempting as it may be to put extra money toward your student loans or credit cards, you want to try to find some amount to put into your emergency fund each and every month. Even a few dollars can help later on. Your emergency fund can help you rest easy knowing that if something were to happen, you’d be okay financially. Treat your emergency fund contribution just as you would any other bill. It could save you from having to use credit and to pay for something later on.
Once you hit your emergency fund goal, keep depositing. As your savings grow, you’ll find you have more retirement money, vacation money, or money to put down on a car or house. Make paying into your savings account a priority.
5. Save for Retirement
Retirement planning is important for your future, no matter what your age. Many people put off retirement saving because they think they have plenty of time. Maybe it just doesn’t feel as important now as other things. The truth is, the sooner you begin contributing to retirement accounts, the better. This is all due to a wonderful thing called compound interest. The earlier you begin saving, the less you actually need to invest to end up with the same amount needed for your retirement.
For example, you start investing $100 a month into your retirement account when you’re 20 and earn an average positive return of 1% a month or 12% per year, compounded monthly for 40 years. Your friend, who is the same age, doesn’t start investing until they are 50 years old by depositing $1,000 per month for 10 years, also averaging a return of 1% a month or 12% per year, compounded monthly for 10 years.
By the time you’re both 60, your friend will have a retirement account of around $230,000. Meanwhile, your retirement account will be over $1.17 million. Your friend will have contributed $120,000 while you have only contributed $48,000. The difference is shocking.
If you participate in a company-sponsored retirement plan, then you’ll likely be able to put in pretax dollars. Often, companies with these plans will also match a portion of your contribution. This is basically free money. You don’t want to leave free money on the table, especially when it can work for you to earn more.
The Bottom Line
If you want to make life easier for your future self, take action now. Invest in yourself, avoid credit card debt, start investing in a 401k plan or IRA accounts. If this all seems overwhelming, it’s a good idea to speak with a financial planner. They’ll use their expertise to listen to your goals, offer investment advice, tax guidance, and even insurance information to help you create the ideal personalized financial plan for your goals.
Reach out to the professionals at Virtus Wealth Management at 817-717-3812 for more information on getting started on the path to financial freedom.
The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.
This is a hypothetical example and is not representative of any specific situation.
Your results will vary.
The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.