Unless you have a small percentage of people who received a large inheritance or trust fund or won the lottery, you should build up your wealth from the beginning. And that’s not the easiest goal. Between stagnant wages, growing debt and a significant rise in cost of living, it seems useless. However, if you develop the following ten habits, you will be able to drive your financial growth to the finish line.
Set life goals.
“What is financial freedom for you?” Matt Danielson asks Investopedia. ‘A general desire for it is too vague a purpose, so become specific. “Write down ‘how much you should have in your bank account, what the lifestyle entails and at what age it should be reached’, he suggests. “The more specific your goals are, the more likely you are to achieve them.”
“Then count back to your current age and set regular financial milestones,” adds Danielson. “Write everything down neatly and set the goal at the very beginning of your financial binder.”
2. Live within your means.
Living below your means does not mean that you are a “cheap skateboarder” or that you are missing out on life experiences. On the contrary, it “simply means that you spend less or less than you earn each month,” Deanna Ritchie explains in a previous Due article. ‘As a result, you do not incur debt by living on plastic. And more importantly, it will help you creating a more stable financial future. ”
“Of course it is necessary to live discipline and a little sacrifice within your means,” adds Denna. “If you stick to it, you will reap the following fruits, besides avoiding guilt:”
- Less stress and anxiety.
- It makes you more successful and healthier.
- You will not obstruct your credit score.
- The ability to build wealth.
- You will have more freedom.
- You have financial security.
This is all well and good. But how can you realistically live within your means without being deprived? Well, here are some suggestions;
- Draw up a budget using the 50/30/20 rule. This is where you spend 50% of your household income on necessities like food and housing, 30% on necessities and 20% in your savings account.
- Save money before you spend it by automating your savings. In other words, pay yourself first where a percentage of your salary goes directly to a savings or retirement account.
- Eliminate frivolous spending, such as the gym membership you never use.
- Stop keeping the Joneses full. They may be putting up the facade that they are financially wealthy. But in reality, they could be in serious debt.
- Delay satisfaction. An example would be to wait for a sale or discount instead of paying the full price for groceries, clothing, electronics or travel.
- Change the nature of your debt. Make your debt repayment more convenient. Examples of this could be negotiating a better interest rate with borrowers or through debt consolidation.
3. Build a solid cash reserve.
While this may not be the best thing in our minds, an emergency can pay dividends.
Consider the following scenario. Your work vehicle does not start on you and will leave early in the morning. It turns out you need an appetizer. Between replacement and labor, it will return you $ 400.
It is clear that it should be considered a financial emergency. After all, you need this vehicle to bring bacon to your home. The problem? You do not have the cash on hand to handle this expense. As such, you have to put it on your credit card – which means you now also have to repay the high interest on the card.
If you have a cash reserve for these types of emergencies, give yourself peace of mind. And more importantly, it helps prevent you from being buried under debt.
In a perfect world, you have to put your cost of living away for three to six months. But setting aside any amount is better than nothing. For example, if you have $ 300 in a rainy fund, you only need to put $ 100 on your card.
4. Use debt strategically.
Many financial experts will advise you to avoid debt at all costs. But not all debt is bad. For example, if you want to buy a car or house, you need to have good creditworthiness. This can therefore be achieved if you request and use a credit card responsibly.
You can also use debt to your advantage to promote your education, acquire property, or to start and / or grow your business. An example of using debt not strategically? If you have to avoid debt if you can not pay the balance, you should maximize your credit card on VIP tickets to a music festival.
5. Keep an organized investment plan.
Once you have built up an emergency fund to deal with the unexpected, it’s time to tackle your investment game.
“There are many, many different investment account options out there,” Alicia Dion notes in a previous Due article. “However, all the different accounts you see can really fall into two categories;” retirement and non-retirement.
” One big mistake beginners make with investing is to think they’re too young to worry about saving for retirement, ” Alicia adds. “But investment and retirement planning actually go hand in hand! Investment is a tool to build wealth. Retirement is an inevitable phase of life that requires wealth. ”
If you want to get the most out of your investment experience, you need to start saving for both short- and long-term goals, ”she recommends. ‘Although your pension is an important thing to save for, it is not usually your only financial goal. There are unavoidable short- to medium-term expenses that can also help finance investments. ”
“The most important concept is for the type of account that best suits your goals,” says Alicia. “Then, knowing that life will bring you all kinds of expenses, you need to get your investments going to help finance it.”
Retirement accounts come in all shapes and sizes. Some of the most common types of retirement accounts include 401 (k) and IRAs. These are often plans that your employer will agree with. But there is retirement plans tailored for entrepreneurs and small business owners.
After considering these retirement plans, you should also consider contribute to an annuity. It can supplement your other retirement accounts, while also providing a guaranteed lifetime income.
For non-retirement accounts, consider investing in equities, bonds or exchange traded funds (ETFs). To wet your feet, you can also use robo-advisors who will do the legwork for you. If you are married, you should look at a joint brokerage account. And if you have children, explore options such as 529 plans and UGMA / UTMA accounts,
The most important takeaway is that you has a diversified investment portfolio to reduce risk while also maximizing your investments.
6. Get more money.
Your mileage may differ from this, but it is nothing more than buying for value. For example, you need almost a pair of slippers for the summer. Instead of handing out the $ 50 for a decent pair, buy a cheap pair at the dollar store.
I do not despise dollar stores here. The point is that flip-flops might come through the summer. In turn, you need to keep replacing it. The cost of replacing sloppy shoes is probably more than if you only coughed up $ 50 from the start.
At the same time, you do not have to move a pair of $ 200 slippers. It just sounds excessive. And you can give up quality for an expensive brand.
7. Take advantage of your employer benefits.
You can skip it if you are self-employed. If not, make sure you go with the employer’s benefits plan with a fine comb. Not only can you miss out on free money, but your employer can also offer benefits that go beyond retirement plans.
Here’s what you need to look for.
- Retirement Match
- Life or disability insurance
- Health Savings Account (HSA)
- Employee Purchase Plans (ESPP)
- Legal Services
8. Expand your financial knowledge.
It can be intimidating and overwhelming when you enter the field of finance. But if you want to become more financially stable and money bossthen you need to keep yourself informed on topics ranging from tax deductions to investment to retirement planning.
How you proceed depends on you. However, you can not go wrong with reading financial books, following authority figures online or taking online courses. You should also sit down and choose the brain of your financial advisor.
9. Look for other income streams.
It can be extremely beneficial to have different income streams. To begin with, if you have lost one source of income, you may fall back on the other. A further benefit is that you can use the additional cash flow to pay off your debt or to save it.
A side rush is what immediately comes to mind. This is when you work as a freelancer or get a second job if you are available. This can work temporarily, for example if you want to earn quick cash for a holiday. But it can get exhausting.
The answer? The pursuit of a passive income. You still have to work beforehand, but eventually you will earn money without putting in too much effort. Some ideas are to rent an extra bedroom, sell an information product, start an annuity or an e-commerce website.
10. Make your health a priority.
“Finance and health are almost impossible to separate,” Kate Underwood wrote in another Due post. After all, healthcare costs money, and making money is much simpler when you are healthy. You may think that you do not have time to concentrate on healthy habits such as a balanced diet, exercise or sleep. “However, you can change your mind if you think about the many financial reasons to prioritize your health.”
To begin with, if you are healthy, you are less likely to get sick and miss your job. I know it’s a big deal if you’re a freelancer. If you skip a day job, you earn no money. If you are employed by someone else, you may miss too many days of work to land a raise or promotion.
Second, there are long-term consequences. With the rising cost of healthcare, you can reduce expenses tomorrow if you care today. So get enough sleep, eat a nutritious diet and exercise regularly.