Suze Orman, an American financial advisor and author, often hits the nail on the head. She sure did when saying, “A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.”
You can relieve yourself of worry about life’s uncertainties by planning for your financial future. Saving for a rainy day and ensuring you have funds for retirement will make those what-ifs less stressful.
Older generations, who lived through depression and war, have tended to take a disciplined approach to saving and financial planning. Younger generations are likely to be more concerned about current obligations than far-off financial goals. However, when it comes to planning for your financial future, the present is the right time to begin.
Use these six tips to plan for your financial future so that you can live a life of financial freedom.
1. Track Your Spending and Plug Leaks
Gaining control of your finances begins with knowing where your money goes. The small amounts of money you spend on unplanned purchases can actually add up to a few thousand dollars annually. That’s why tracking your expenses is crucial.
Make a list of all the things you buy on a daily basis. Go through credit and debit card statements to find out how much you spent and on which items. You will likely notice that some of these purchases were not really necessary and could easily have been avoided.
They could be anything: daily lattes from your favorite coffee shop, eating out regularly, or any other type of impulse purchase. The amounts may seem minuscule at the time, but they add up to a substantial sum over a month — and an enormous amount annually.
A leak of around $50 every week can add up to $2,400 in a year. Now, that’s serious money!
2. Develop a Budget
Struggling to handle your finances? Many people do, sometimes younger generations especially. They’re new to money management and being on their own, and they may find it difficult to control frivolous spending.
Yet securing your financial future requires you to create a budget. It is nothing but a plan for how you will spend your earnings every month. You must strike a balance between income and expenditures and ensure the latter is always substantially lower. This will help you set aside some amount for your future needs.
Begin by writing down your income from all sources and all your expenses. Set aside a fixed amount for unforeseen expenses such as a medical need or emergency car repairs. Track the spending a couple of times over the month. Determine whether you have achieved your monthly budget target.
Did you spend more than you earned? Make sure you fix the problem in your next month’s budget by cutting down on voidable expenses.
3. Get a Grip on Your Debts
For most Millennials and Gen Zers, financial freedom means getting control over their debts. Most Americans have debt in some form or the other. It could be a mortgage, car loan, student loans, or a credit card balance. It is important to reduce or eliminate debt to get your current finances in order. Debt reduction can help make your financial future more secure.
Identify your debts with the highest interest rates. Credit card debt can cost you a tidy sum just on the interest component. While you must stay current with all loan payments, prioritize the payment of credit card balances to save the largest sums on interest.
4. Make the Most of Employer Benefits
Are you among the fortunate recipients of employer-sponsored benefits? Count your lucky stars and take full advantage of them.
If your employer provides a 401(k) plan, contribute as much as you can to it, particularly if your company matches contributions. This employer benefit can add to your retirement nest egg substantially. Find out the highest contribution allowed so you can maximize your savings through this resource.
Some companies offer support for dependent care and education. A matching sum is deducted from your income to create a safety net for future childcare and educational needs. If possible, try to contribute more toward this account from your salary. By the time you (or your child) need it, you will have accumulated a fairly substantial sum.
5. Boost Your Insurance Protection
As a young person, your biggest advantage is your ability to improve your earning potential. That’s why it is crucial that you have a solid insurance cover to protect your life. Experts recommend term life insurance as one of the best options. It covers you for a specific amount of years, and it is relatively inexpensive.
Ideally, your life insurance policy should be able to replace your income. So plan your insurance investments accordingly.
Life insurance experts also suggest buying disability insurance, especially if you have dependents. It may cost you more than life insurance, but it can replace your income in case you lose your ability to work. Check whether your employer offers disability insurance in any form — most of them do nowadays. If yes, go for it without hesitation.
6. Create a Robust Investment Plan
There are active and passive forms of income. When you are working to get a paycheck, you are earning actively. When you have invested in instruments such as stocks, bonds, or real estate, you are earning money passively.
You must have multiple income streams to help you take in enough and save substantially for the future. Not sure how to do it right? You can invest in mutual funds that can earn you an average return of around 7% for long-term investments. Alternatively, an investment advisor can help you identify attractive earning mechanisms that can more than secure your financial future.
It is not easy to save money, especially if you are young and love weekend parties and eating out. But saving is the only way of achieving financial well-being and securing your future.
After amassing an emergency fund, one of the most recommended ways to save money is to open a tax-advantaged retirement account. Make it a point to save a certain percentage of your income before spending money on anything else. You can ask your bank to auto-deduct a fixed amount from checking and add it to your savings every month. When you make various forms of saving and investing a habit, life’s what-ifs will hold fewer terrors.