Keeping your finances in order is hard. You wish they had a class for this while you were in high school, teaching you how to keep your finances in good form but unfortunately. The curriculum has not caught up with the realities of life yet.
We are living in different times than our parents and very far away from our grandparents. Easy access to credit, being able to do anything by a few clicks and taps on the keyboard or your phone’s screen, is pushing everyone to take the easy way. Of course, there is nothing wrong with easy, but if you get caught up in the easy flow of money, it can easily ruin your life.
This is why you need these tips to get your financial life in order before it is too late. You can take these advice snippets independently and try to make that aspect of your life better, but if you approach the whole financial picture holistically, they will meld and make more sense. Before getting lost in the terminology, here is what you need to watch out for.
1. Learn Self Discipline
It is very easy to sign your name on a dotted line or click on “I accept” online and get instant credit for something you want and get it almost instantly. But, there is a big but here, can you afford it with the money in your pocket or in your bank account today? Instant gratification is great until you realize how much in interest payments you have to make for that spur of the moment decision. This is the most important thing which gets a person starting a life on his or her own, into trouble, faster than anything else. Don’t get suckered into this type of behaviour.
2. Learn to Control Your Finances
Money is nothing but numbers. And they taught you numbers starting in grade school. Use that knowledge to good use. If you don’t control your finances, somebody else will do it for you when you get into trouble, and some of those people don’t do it in your best interest, while some others might just be malicious.
3. Make A Budget
Yes, the “B” word. It is essential. Are you aware of where your money is going? Do you know if you have enough money in your hand after you pay for all the essentials? A budget will make sure you do and will show you what to cut off if you don’t. Put your unavoidable expenses on one side and your income on the other side and look at the final picture. Most people’s jaw drops the first time they do this, honestly.
4. Save For Emergencies
Not every problem hits you when you are expecting it. As a matter of fact, problems hit you when you were least expecting and put you in a financial bind. Keep aside a small quantity of money every time you get paid for such situations. If no emergency strikes and your money grows bigger, do not treat it as a slush fund and spend it. Save it for something big, like retirement, but more on that later.
5. Start Saving For Retirement
Even if you think retirement is far, far away, start saving for it. Your future self will thank you. There are two aspects of why you need to start saving for your golden years early. First and foremost, you don’t know what the future holds for you. Today, you are working and making good money. Tomorrow, if the job market turns and jobs become scarce or if you have an ailment or an accident that holds you back from working, it will be too late to start saving.
And second, earlier you start saving the interest on that saved money will compound itself many times over. One hundred dollars saved at age 25 becomes over $3200 at age 60 with a measly 10% gains rate, while the same money put away at age 35 only gives you about $1200 at the same age. Here’s a simple compound interest calculator if you want to see the effects of starting to invest in your future early. Plus, most employers provide means to save from your pre-tax dollars, which makes the pot even sweeter.
6. Understand Taxes
Even before you get paid the first time, understand how taxes work. When an employer offers you a job for $30,000 per year, know that you, after taxes, are taking home approximately $24,250. Quite a big chunk of charge. Isn’t it? Earlier, you realize how the taxes work, the better the decision you make will be. The Internet is full of income tax calculators. Use one of them and figure out your tax liability.
7. Protect Everything You Have
Do you know what would happen to your belongings if there were a fire or flood where you live? And how about your car? Other than being mandatory, driving without car insurance, you are taking a big risk if you don’t have it. Don’t delay. Buy insurance for everything that is valuable to you. It will save you a lot of headache down the road.
Bonus Tip: Protect Your Health
This is not referring to keeping healthy by the life choices you make, although those help a lot as well. Protect your health just like you protect everything that is valuable to you. Buy health insurance. Nowadays, you have to carry health insurance if you don’t want to pay a fine at the time of taxes, but it is always a good idea to be covered against anything that can happen. A broken arm may cost you thousands of dollars of expense if you are not insured.
Finances are not magic. If you use proper ways, there is nothing to fear. Income minus expenses is what you have. Use it wisely. That’s all there is to it.