Get Started on Your Financial Future
Too many people adopt a
tomorrow attitude when it comes to their money. Or worse, they panic because yesterday has already come and gone, leaving in its wake a whole lot of shoulda, coulda and woulda.
Both approaches share the same problem. When you default on either, you give your financial power away—power that's in your grip today.
That stops now! Let's get your future started!
- Step 1: Budget your money... because planning is the new spending.
- Step 2: Set your goals. It's how realists make financial dreams come true.
- Step 3: Get smart about your spending, i.e. avoid overspending and employ comparison spending.
- Step 4: Give Uncle Sam his due, with the no-grumble guide to paying taxes.
Planning is the New Spending
You know the saying,
Youth is wasted on the young? It’s true. Sometimes. Except not for you. Yes, you will turn 65 one day, but when that day does come you’ll laugh in the face of uncertainty. Why? Because you’re not about to waste a single second, or cent.
Instead, you're going to:
Budget like a Ninja
A budget is a matter of balancing your input and output, not the difference between having a life and pinching pennies in solitude. Anyone can create and stick to a budget. Anyone.
Deal With the 'D' Word
Student loans up to here, credit card debt up to there…we’ve all been there. While it might not always seem fair, dealing with debt payments on time every time—and paying back extra when you can—will help you establish and maintain good credit. And the thing about credit is that it needs to be good for when you want to do the things that matter, like buying a car or house.
Get Smart About Insurance
Do you have the insurance coverage you need? Sure it may feel like just one more expense now, but it could end up being your proverbial saving grace. With financial common sense, you’ll be nothing but prepared for everything life throws at you.
Finance the Future
You know how you’re going to turn 65 one day? You’re also going to want to retire. In the short-term, you’re going to sock away at least three to six months worth of expenses in your No Worries fund. Then, you’re going to take the long-view on saving, the smart way, with employee-sponsored retirement plans and pretax individual retirement accounts (IRAs).
Goals: How Dreams Become Reality
We all have dreams, many of which require financing. Hope alone can’t make those dreams a reality. Nor will money; if those dollars and cents are earned and spent without a clear objective in mind.
In order to turn your financial hopes and dreams into something you can drive, live or retire in, commit this to memory: Most money worries step from lack of planning, not capital.
Establish clear goals so you can focus on the things that really matter to you.
Got goals? Of course you do. But daydreaming about them won’t do you any good. In order to achieve your goals you have to get down and dirty with them, nail them down to a timeline, twist that goal's aims and objectives until either you or it cries 'Uncle.'' In civilized society, we call this getting specific.
- Step 1: Write down your goals. Include every practicality, creature comfort and pie in the sky you can imagine.
- Step 2: Ask yourself: How important is it for me to achieve this goal? How big is this goal? For example,
I want a new car. Will a well maintained used car at 40% of the new car price work? or
I want my kid to go to college. Does it have to be Ivy League? Consider your options. How much money will I need to save? When do I want to achieve this goal?
- Step 3: Divide your goals into three ‘to-achieve’ lists: Immediate goals, Intermediate goals and Long-view goals.
From here, you’ll want to rank your list by order of importance. You likely won’t be able to work towards all of your goals at once, so organize your list based on what you want to accomplish first. Depending on your goals and budget, you may be able to tackle one from each timeframe at the same time. This is your goal timeline, and you’ll need it to stay motivated and on track.
Create a workable timeline to keep you motivated and on track.
Now that you’ve got your list of goals in front of you, it’s time to put them into perspective. To take them all on at once would be madness, and our end game is financial peace of mind, not insanity.
Therefore, you must be realistic with your timing, and spread your goals out.
Once you've identified your goals and sorted into your three to-achieve lists, the next step is to set milestones for each goal individually. The more you can break a goal down, the more attainable it will feel. No need to face the mountain when you can tackle the molehill.
Dream big and empower yourself to achieve the possible.
You know your goal and you know when you want to achieve it, now it’s time to figure out the first step to get there. For example, if your goal is to buy a house, set savings milestones and when you want/need to achieve them. Maybe you want to save X amount by this date and Y amount by another. For shorter term goals, milestones may be closer together; maybe you want to save X amount each day or week, in addition to reaching a set amount by a certain date.
Having short term objectives for longer term goals helps keep you on track, and helps you see that even the smallest advance is still a victory. Plus, it’s easier to play catch-up between smaller milestones than catching up to a long term goal right at the end.
Build it into your budget
While you’re identifying your milestones, it is important to make sure they fit in your budget. A goal or plan is useless if it doesn’t. Add a line for each goal you are working towards and treat it as you would any other bill: it must be paid! Remember, you most likely will not be able to work towards ALL of your goals at the same time, so attack your highest priorities first. Once you get in the swing of things, you may find that you can fit additional goals in along the way.
The takeaway here is that while we all love a good challenge, an impossible challenge will leave you discouraged. Plus, working towards too many big goals at once will ultimately hinder your progress. Should a windfall or raise come your way, adjust your budget accordingly and put more towards your goals when you can. In the meantime, be smart about working with what you’ve got.
Dream big and empower yourself to achieve the possible.
Banking dollars to achieve your financial goals is no different than losing weight to fit into your skinny jeans. It’s a matter of replacing bad habits with healthy ones. If a house is the size four you’re after, then you should second-guess that pricey double caramel macchiato. Offset your daily spending habits with some of these smart saving tactics instead.
- Get specific.
Having goals is not enough. If down the line you want to save up for a kid’s college education fund, get real about that monthly commitment. Instead of, “I’d like to have a kid one day and send that kid to a good school,” try, “On the 15th of every month, I’ll need to dedicate $100 to a 529 account.”
- Treat goals as destinations.
You would have to be superhuman to drive from one end of the country to the other in a day. The same applies for going from zero to goal. Realistically, the best and most rewarding route to your destination is the scenic, yet efficient one. Enjoy the ride, just don’t fall asleep at the wheel!
- Be flexible.
It’s been said that the more things change, the more they remain the same. That’s because change is inevitable. Check in regularly with your goals and yourself to make sure that both of you are still on the same page and working effectively. Changes in your life may mean tweaks to your goals, your priorities and your approach.
- Don’t obsess.
While it’s key that you stay on track to achieve your goals, don’t obsess over them. A great time to check your progress is at the end of the year, when you can compare it to the end of the previous year.
- Save One Dollar at a Time.
Focus on the road directly in front of you: the dollars and cents you can stow away today to get you to tomorrow. Thanks to the miracle of compound interest, that $50 a week (roughly $7 a day) you manage to put away earning 2% interest could equal more than $8,000 in just three years.
- Have Some Discipline.
When you created your budget, you spent time tracking every dollar, whim and penny spent, from bills to bubblegum. Now it’s time to ditch the bubblegum. Take a look at your three most recent bank and credit card statements and mark every charge and debit you can eliminate entirely. Now apply that savings to your goals. And when you get a raise, take at least a portion and add it to your savings plan. It’s increased savings you’ll barely feel!
Technology is a wondrous thing. Take advantage of the 21st century by setting your goals on autopilot. For example, have $100 automatically transferred from your checking to savings account each month. Automatic bill payment will also save you from late fees, which will go a long way to establishing the credit you need to get what you really want.
- Let Your Company Play Matchmaker.
If your company has a match plan in place, go ahead and max out your retirement plan contribution. Let’s say your employer contributes 50 cents for every dollar you put in, your $3,000 investment gets a $1,500 bonus. That’s basically free money. You heard right, FREE!
- Get a Roth IRA.
Withdrawals from a traditional IRA or 401(k) will be taxed. But withdrawals from a Roth IRA are not, provided they’re made within certain provisions. It’s never encouraged to borrow from your retirement, but depending on your goals a Roth IRA may be a great addition to your savings portfolio.
- For as little as…
You’ve probably heard that line before, but you might be surprised how little it would cost to buy a million-dollar life insurance policy, something to think about if you’re a mom or dad.
- Embrace lucky number 13.
Try this: if you add an extra payment to anything, you will pay that thing off that much faster.
- Get a saving buddy!
Who knows you better than you do? Your best friend. Team up with someone close to you who has similar financial goals in mind. Money is a delicate topic for most people, but your dollars will go a lot further if you’ve got someone in your corner that will keep you honest, accountable and on track.
Spending: What’s Normal?
Here’s a piece of advice to live and budget by, care of lifestyle guru Mark Twain:
Comparison is the death of joy. That is to say, comparing your spending habits to everyone else’s spending habits will only end in tears, frustration and sadness.
Basically, there’s no such thing as normal when it comes to spending. Sure, there are norms, but even those are variable. And not only are norms variable, they’re defined by factors that are not within your control, such as your zip code, tax bracket – even the seasons!
What you should be asking yourself is what is your normal?
Defining normal spending for you:
Here’s a calculation that everyone can live and budget by, care of Harvard bankruptcy expert Elizabeth Warren: the 50/30/20 rule. Meaning, to keep spending within your means, after-tax dollars should be budgeted according to…
- Your needs, which should be limited to just 50 percent of your net income.
- Your wants, which should only take up 30 percent of your budget and spending.
- Your savings and debt repayments, which should equal at least 20 percent of the money you earn each month.
Establishing your 50/30/20 will require some money tracking, cost evaluating and emotional digging on your part. To help establish your 50/30/20, ask yourself three questions:
- First, manage your habits. Is there a way to make them work for you instead of siphoning off every dollar you earn?
- Speaking of siphoning, are you spending money on energy you could be saving?
- Finally, the path to financial stability is not always paved in mortgages and car payments. What other spending options can help you chart your course?
Once you’ve evaluated your baseline 50/30/20, financial decisions will be easy—just crunch the numbers to see if adding a new bill will fit your ratio!
The No-Grumble Guide to Paying Taxes
At this point it’s a cliché, but true. There are two things you can’t avoid in life: paying taxes is one of them.
Instead of grumbling, it’s important to understand that paying taxes is our way of contributing to the greater good of society – for example, the roads, schools and services we depend upon each day. Taxes are an integral part of our history, too, the very reason we fought for our independence. When the Constitution was written, provisions were created so that taxation could be doled out fairly, efficiently, and responsibly.
Though you may or may not agree on taxes politically, it’s your civic duty to pay them. Of course, it’s helpful to understand why you pay them, how to pay without a penalty, and ways to avoid overpaying.
The next time you fill out a Form W-4, you can do so with a smile on your face and pride in your heart. When you think about it, taxes are kind of a privilege. A patriotic…joy! Okay…maybe not a joy.
In this world nothing can be said to be certain, except death and taxes.