From planning and tracking spending to building your savings and credit score, itï¿½s important to understand what you can do now to help with your future monetary needs.
Track Your Spending
A November 2012 article in U.S. News Money by staff writer Kimberly Palmer posits that one of the easiest things you can do first to help your financial stability is to decide on your money savings and spending goals. Do you want to save up for that three-bedroom, two-bathroom home in a nice neighborhood? Or do you want to take a sabbatical from work and travel the globe? Identifying your goals will help you focus your spending habits on only the essentials as you look to save.
ï¿½Keeping track of every expenditure over a two-week period can offer insight into unnecessary wastes, from restaurant meals to cab rides,ï¿½ says Palmer.
Palmer also suggests you review your account statements on a monthly basis. This is a smart financial move not only to help you stay frugal but also to protect your money.
ï¿½An unfamiliar charge on a credit card is often the first sign of identity theft,ï¿½ says Palmer. Checking your accounts is very easy and can be done via mailed statements and online for most financial institutions.
An April 2013 article in the Wall Street Journal highlights how to create a mindset for healthy spending and saving.
ï¿½[Considering your income] the rule of thumb is: 50/30/20. The idea is 50 percent of your take-home pay goes to needs, 30 percent to wants, 20 percent to savings,ï¿½ says founder and chief executive of MoneyZen Wealth Management LLC Manisha Thakor.
Start Saving Now
Especially for the younger generation, starting a savings account is crucial to a financially stable future. Start putting money away for retirement as soon as possible, even if itï¿½s a small amount; you can always increase your savings contributions as your income increases.
ï¿½The simple truth is that the compounding [interest] of earnings in a retirement account creates the potential for an exponential increase in your retirement savings,ï¿½ says professor of law at Emory University Rafael Pardo in an April 2013 article in the Wall Street Journal.
And although it sounds counterproductive, financial experts suggest younger adults looking to start their retirement savings do so with Roth accounts over traditional ones.
ï¿½Itï¿½s true that traditional IRAs and 401(k) contributions offer upfront tax deductions. But most young people are in the lowest tax brackets theyï¿½ll ever be in, and the value of the taxes youï¿½ll save is relatively low. By contrast, Roth IRAs and 401(k)s donï¿½t give you a tax break when you contribute. In exchange, though, youï¿½ll earn tax-free growth throughout your career ï¿½ and avoid what could be much higher tax rates by the time you retire,ï¿½ reports CFP Dan Caplinger in a March 2015 article on CNN Money.
Handle Your Debt to Build Credit
In an April 2013 article in the Wall Street Journal, financial planner and principal at California Financial Advisors Michelle Perry Higgins also suggests paying off any student loans and major credit card debt as soon as possible.
For one, interest rates will only add to your debt over time. Paying off such large debt will also help you build better credit, which is necessary for larger purchases, like buying a home.
An April 2013 article in Time Money suggests building your credit score by having two to four credit cards but using only one.
ï¿½Scorers look at how much credit is available to you ï¿½ in relation to how much youï¿½re not using. Make one your primary card and ice the others,ï¿½ advises Time Money.
Paying off your credit card debts each month will also help you reap more rewards than just improved credit scores. Most credit cards offer rewards points (sometimes as rebates or money back on purchases), fraud protection and even liability protection for holders who pay off their debt each month, says Palmer. This will only help in maintaining your healthy spending and savings mindset.
If you need guidance on any other smart financial moves you can make today, contact us and weï¿½ll be happy to help.