Unfortunately, personal finance is not a required subject in most high schools or colleges. A lack of financial education leaves many young adults unsure of managing their money, applying for credit, and staying out of debt. Planning your financial future is crucial. Here are some ways to increase your savings and lay the foundation for financial success.
Track your spending
Keeping precise tabs on how much money is coming in and going out of your checking account each month should be a top money priority. Without knowing how much you’ve spent, it’s nearly impossible to know how much you have left to put toward important financial goals, like building up your emergency fund.
Pay yourself first
Saving some money every month is as essential a money to-do as routinely tracking your spending. Of course, we also know that this is easier said than done unless you get into the habit of paying yourself first, which is the practice of saving a set amount of money from each paycheck before you do anything else.
One way to help make the pay-yourself-first process more manageable is simply automating your deposits by funnelling money straight into a savings account every time your paycheck hits your bank account.
Find ways to reduce your expenses
Most of us find it hard to keep our outflow of cash less than our inflow, and that is how we end up living paycheck to paycheck or, worse, racking up credit card debt. Unless you have ways of earning additional income, this is where the money will come from to fund your goals. The first step is to look at your bank and credit card statements to see where your money is going. Then get rid of anything unnecessary or wasteful that you can eliminate or replace.
Set and stick to a budget
Although many people cringe when setting a budget, a budget often involves controlling and becoming more aware of what you need to do with your money. Budgeting is more intentional spending as opposed to aimless spending. Once you have a solid framework for your monthly spending in place, it can be easier to see where you need to rein in any frivolous outflow. It allows you to set financial priorities that are consistent with your overall future financial plan.
Set short-term and long-term goals
Although your future plans may not happen for some years, it’s important to set short-term and long-term goals that you can implement along the way. Otherwise, achieving your future financial goals will simply be left up to chance, which means that they may or may not happen as planned. You’ll want your goals to be more concrete. They should be specific, measurable, achievable, realistic, and trackable.
Kickstart your emergency fund
While it may seem intuitive to attack your debts first, experts advocate jumpstarting your emergency fund before all else. Why? Misfortunes can and do happen every day: you lose your job, your car breaks down, someone in your family is injured. Without an emergency fund to cover these costs, you risk spiralling further into debt.
By having a self-insurance policy in place, you can protect your life, your income, and your home, as well as general peace of mind. There’s no correct answer to how large your emergency fund should be, but a popular recommendation is 3-6 months of living expenses.
Insurance is an essential part of protecting your financial downside—but neither should you overpay for coverage you don’t need.
- Health insurance: Without it, even routine care can cost a pretty penny, while a severe injury or hospital stay could set you back tens of thousands of dollars. As you get older, you may want to consider long-term care insurance, as well.
- Disability insurance: This coverage protects you and your family in the event you’re unable to work.
- Life insurance: This is generally a good idea for those with dependents. Work with an insurance agent to understand what type of—and how much—coverage makes the most sense for you.
Plan for retirement
While retirement may seem like a lifetime away – the average retirement age in Asia is 60-65 years old – it’s never too early to start saving and leveraging the power of compound interest.
Remember, you don’t need any fancy degrees or particular backgrounds to become an expert at managing your finances. Your journey to financial freedom won’t always be smooth-sailing. However, with proper forethought and implementation, hopefully, you can begin to control the outcome of your financial future better.
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