If you recently graduated, or simply consider yourself a young adult, you should take time to develop a solid financial plan. This may not be the most important thing on your mind right now, but it really should. Even if you think you still have plenty of time to build up a retirement fund or to save up for a house – think again. The biggest benefits in growing your fortune come from the time passing by. Yes – the more time you have the more value you can get out of the money you are able to earn and invest.
You will now learn about a few very simple steps that you should take right now, a few easy decisions that you should make to significantly improve the quality of your life in the future.
Set up an emergency fund
I know that this may sound ridiculous to you at the moment, when your income hardly covers your expenses. But it’s never too early or too late to start an emergency fund. Think about it – even if you develop a perfect personal budget, you can never take everything into account. There will always be unexpected expenditures. Maybe your car will break down next month or you will need a new resource for your studies. It would be very smart to have a separate account from which you could borrow the money rather than charging it on your credit cards, wouldn’t it?
You can start right now by putting aside small amounts of money into a separate account every time you receive your salary or get a bonus. Just start immediately – don’t think about it too much.
Later, when your budget allows it, you should consider building up a bigger emergency fund – maybe equal to your 3 to 6 month salary. This is for bigger emergencies like losing your job or getting seriously ill. Once again – it’s never too early to start your own emergency fund.
Plan your retirement
I know – no one thinks about their retirement when they are in their 20s. If I can teach you one thing about saving for retirement – time is a huge factor. If you start earl enough, even very small monthly savings will lead to nice retirement fund. A popular suggestion is to put aside 10% of your income every time you receive your salary. I would say – start with whatever you can – just start right now. Remember that planning for your retirement is very important even at young age. Compound interest does a great job increasing the value of your investments – the only thing needed is time.
Start saving for a house
Even if you are not planning to buy a house for a while, you could still start putting aside some money for a down payment. Of course it is possible to buy property with no down payment, but this will only increase the overall cost of your mortgage. In many cases, without a 20% down payment, you will be obliged to purchase private mortgage insurance, which will considerably increase your monthly payments.
It’s unfortunate that personal finance hasn’t yet turned out to be a compulsory subject in schools or colleges. So a lot of people out there are fairly naive about managing their money.
But this doesn’t actually mean that personal finance will always be way above your head! Frankly speaking, it doesn’t take too much to roll back on the right path. Just read this article to know how to craft your own strategy. Fortunately, you don’t have to be good at math to grasp the ideas!
Use self control
May be you were taught by your parents about this when you’ve in your childhood. Just in case you haven’t mastered it, it’s not too late. Almost everybody found success in life through delaying gratification. If you can do it, it’ll be easy for you to have your finances nourishing.
True, you can easily buy something on credit the moment you want, it’s a better idea to wait till you’ve saved up that much. Do you love paying interest on your new pair of shoes or jeans or a bottle of milk? Avoid putting each and every purchase on your credit card.
Take full control of your financial future
Unless you learn to smartly manage your money, others will figure out ways to easily (mis)manage it. Unfortunately, some of them are ill-intentioned (e.g. crooked commission-based, so called financial planners).
At the same time, others might be pretty well-meaning, but might be totally ignorant about what the consequences of their actions are (e.g. Grandma wants that you buy a new house despite the fact that you can at best afford one of those double-crossing adjustable-rate mortgages). So do not rely on other people’s advice. You should rather take charge of your finances and research on some basics on management of personal finance.
Know where all your money goes
When you’ve read a few books on personal finance, you’ll know the importance of keeping your expenses below your income. The finest way of doing this is – budgeting. Once you’ve realized how the seemingly negligible things are adding up at the end of the month, you’ll know how to control that.
Same goes for recurring expenses. If you avoid wasting money on the luxury apartment now, chances are high that you’ll be capable of affording a great condo or a new home even before you know it.