Do you have a plan for your financial future? Do you have any idea how much you’ll need to maintain your current lifestyle once you leave the workplace? There’s a lot to consider and figure out.
Saving money requires discipline – a lot of discipline for some people. Financial planning is a step above having a savings account.
Many people reach retirement age only to realize they don’t have enough money saved to continue their current lifestyle. Or they experience a life-changing illness or accident that significantly impacts their income.
Don’t get caught without the proper financial resources for retirement. It’s time to start thinking about your finances. Here we will go over the things everyone should know.
Keep reading to learn seven tips for financial management.
1. Understand What Financial Planning Entails
Financial planning is similar to creating a business plan. Instead of outlining how you’re going to run a business and ensure long-term success, you’re outlining, you’re creating a financial strategy.
Managing your finances requires a realistic approach to your income vs. your expenses. It differs from creating a budget because you’re not just trying to get bills paid from month to month.
You’ll create a document that details every outstanding debt, plus how much you’re paying out each month in bills.
Next, you’ll want to start looking at expenses you can eliminate. The goal is to free up as much as possible to begin saving and investing more towards retirement.
2. Invest in Your Employers Retirement Plan
Tax free retirement plans make saving money easier. Unlike a regular savings account at a bank, investing in a retirement plan means your money is working for you. Most commercial banks offer savings accounts that do not yield a return for the customer.
Your retirement account has multiple benefits. It’s tax-free as long as you do not make an early withdrawal. It earns interest from the investment accounts you select. There are processes and tax implications for early withdrawals.
You simply drive up to an ATM with a saving account and withdrawal up to your daily limit.
3. Create a Realistic Budget
Creating a budget has its place in financial planning. The budget is a way to monitor your spending habits. To have an effective budget to manage your finances, you must be diligent in recording every expense.
There are expense tracking apps to help you document your spending. Look at the data at the end of each week and each month. Determine what areas you can reduce spending.
For example, if you’re buying a large coffee from Starbucks every day, make it a medium next week. Or consider buying Starbucks coffee from the grocery store and making your coffee at home.
4. Start Paying Down Debt
The best way to successful financial planning is to pay off outstanding debt as quickly as possible. Start with the smallest debts first. Take the money from the paid-off debt and place it towards the next bill.
You can also take the money and deposit a percentage into a savings account. This way, you are working towards becoming debt-free, and you’re building your savings.
Closing accounts after they are paid off could negatively impact your credit. Research to see how you can keep your usage rate below 30% with the least amount of open accounts.
5. Consider Looking for a Higher Paying Position
It’s possible your personal finances are in shambles because you don’t earn enough for the lifestyle you’re living. Financial management is as much about input as it is output.
Your financial planning becomes easier when you have more income. If you love the company you’re with, look at career opportunities that come with a pay increase. Another option is to discuss a pay increase with your manager.
There is a strong possibility you’ll have to move into a new role with a different company. If it comes to that, make sure you’re leaving for an overall better package. The move should include equal or better benefits, the cost of transportation, and more.
It’s not a smart move if you’re making more money but increasing your monthly expenses.
6. Look Into Debt Consolidation
Debt consolidation is an excellent way to get your finances in order. First, make sure the opportunity is going to minimize your monthly debt. Also, search for the best interest rates.
The goal of consolidating debt is to have one monthly payment less than the combined debt being consolidated.
Moving high-interest credit card debt into a personal loan with a set term can save you hundreds of dollars. Discard all store credit cards because they tend to have higher interest rates. You can keep one major credit card for emergencies.
The benefit of having a term loan is that you have one set monthly fee, and you’ll know when the debt will be paid off. With a credit card, you can pay indefinitely. You’re also more likely to continue incurring debt with a credit card.
7. Avoid Unnecessary Purchases
Avoiding unnecessary purchases might be hard for individuals accustomed to buying what they want when they want it. You don’t have to become a miser or deny yourself the finer things in life.
Before going out and buying a new car, ask yourself if it’s necessary. Is the car you’re driving in good condition? Is it almost paid in full?
Why not hold onto the car and use the monthly payment to increase contributions into your 401K. Or you can use the money to pay off your mortgage faster.
The same holds true for any impulse purchases you be considering. Always ask yourself is it necessary and can the money go towards paying off existing debt.
Your Financial Future Is in Your Hands
Financial planning is a smart way to prepare for retirement. Social Security may not be enough to keep you your current lifestyle. Having a realistic assessment of your financials today can help you down the line.
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