Whether you are single or married, have just started working or are about to retire, you should know how to handle your money. Here are six financial tips you should always follow.
Always have something for emergencies
You never know when you might lose your job, get sick or get into a situation where you can no longer work. If you then have no savings, then you run the risk of incurring debts or getting big financial problems when the unexpected happens. This is also the reason why you should always have an emergency fund with the cost of living for 3 to 6 months. In addition, you should keep this money in a safe place like a savings account so that it is quickly available. If you don’t have an emergency fund, then setting up such a fund should have the highest priority over any other financial goal, including saving for retirement, or making a down payment for a house. You should also review your Emergency Fund regularly to make sure it matches your circumstances.
Try to live with your possibilities
If you spend every penny you earn, you have no room for extra costs and lose the opportunity to save. The latter can be a big problem, especially when it comes to your later retirement. Living among your possibilities can also take away some of the financial pressure you would normally feel. And once you’ve learned to be happy with less, you’ll also appreciate the flexibility of having some extra money on the high end. Moreover, it will allow you to save for the future. No matter where you are in your life, you should always try to save at least 10% of your income. The more you save, the better.
You need a budget
No matter how much you earn or how expensive or inexpensive your cost of living may seem to you, you still need a budget to keep your finances in check. If you don’t have a budget yet, now is the time to set one up. Once you have made this personal financial plan, you should check it again and again to see if you need to make any changes. In addition – and this is very important – there should always be some room in your budget to put something aside. If this is not the case, it means that you are spending too much and should start spending less.
Invest money you don’t need
Money you have today is worth more than the same amount of money in the future, because this money also has a profit potential. This is also the reason why it is always wise to invest money that you don’t need or that you won’t need for the next few years. Imagine you have 5000 US dollars in a savings account, which you won’t need in the foreseeable future. If you take this money and invest it in stocks and manage to make 8% annually over the next 30 years, you will make $50,000 out of that $5,000.
It costs you more to borrow than to save money
Whenever you borrow money, you have to pay interest on that amount. As with investing, your money will grow over time, so your debts will cost you more over time. Let’s say you need $2000 to buy new furniture. If you save this money in the course of 6 months, then you spend 2000 US dollars to buy this furniture. But if you take that $2000 from your credit card with 12% interest and it takes you 6 months to pay it back, you’ll pay $2070 instead. With the exception of your home and car, you shouldn’t buy anything that you can’t pay for in full.
You will need more than you think for your retirement
Many people underestimate the amount of money they will need when they retire and save too little because they feel that the pension is still a long way off. In reality, it is impossible to save too much for retirement. And the earlier you start saving, the better the chances are that the piggy bank will be big enough. If you pay 200 US dollars into your pension fund every month at the age of 45, you will have 110,000 US dollars by the time you reach the age of 65 if your investments have reached the average return of 8% per year. But if you start 10 years earlier, you will have $272,000 – more than double that amount.
A large part of financial planning is about setting the right priorities. If you follow these simple rules and are financially responsible, you will enjoy the benefits now and in the future.