Everyone wants to be financially fit, but are you willing to work for it? Financial success isn’t always defined by how much money you make, but what you do with your money once it hits your bank account.
Fortunately, there are ways to get a head start on your future financial success. Here are four of them.
1. Build an Emergency Fund
One of the best ways to guard against an unforeseen emergency, larger-than-life medical expenses, or the loss of your job (or any crisis that requires a large sum of cash) is to create an emergency fund. In it’s most basic form, an emergency fund is a sum of money saved up and earmarked only for emergencies – true emergencies.
Expert suggestions about the amount of money needed for an emergency fund range from covering one month of necessary expenses to covering six to nine months of necessary expenses. Whatever range you choose, you should also decide how you define “necessary expense” – things like rent or mortgage, utilities, and groceries.
Repeat these words: credit cards are not to be used for emergency funds. An emergency fund should consist of saved income, not credit. If you use a credit card as an emergency fund, you’ll end up creating a future emergency.
2. Pay Down Your Debt
One of the most interesting, and un-winnable, arguments within the personal finance world is the questions about what should come first – saving up an emergency fund or paying off your debt? No matter what the answer may be, the important thing to remember is that both are pillars of a successful financial future.
Paying off your debt keeps more of your money in your bank account – over the long term. The faster you pay down your debt, the less interest you pay and therefore you keep more of your hard earned cash. But the reason so many people keep putting it off is that, over the short term, paying off your debt faster feels like you’re losing more of your money.
When you pay off your debt faster, more of your income goes toward paying everything off. So yes, you might have less disposable income. But it’s only for a short while. Once that debt has been paid, there’s no more debt! And you’ve saved potentially thousands of dollars by avoiding long-term interest payments.
3. Watch Where Your Money Goes
Know what you spend your money on and be able to control that spending. Just because you have a shiny new job doesn’t necessarily mean that you need a shiny new car, or a shiny new home theater, or a shiny new wardrobe.
And just because the CEO of your company spends money like it’s going out of style doesn’t mean you have to mirror his/her spending practices. So the value of your car is tens of thousands of dollars below the bosses car, that’s okay. It takes time, and wise decision making, to build wealth.
And remember, it’s never too early to start saving for retirement.
4. Invest in Yourself
The last bit of financial advice to help you gain a head start on your financial future is this: don’t forget about yourself. Yes, you should be smart with your money. Yes, you should be interested in your company’s 401k program or a personal IRA. Yes, you should start a savings account. And yes you should, as so many personal finance experts trumpet, pay yourself.
Don’t forget to invest in yourself. Drive cheap cars for a while so you can save up that monthly new car payment. In a few years, you can start paying cash for your vehicles and empty the money you save into a sweet IRA or mutual fund.
Continue to learn and grow and be educated about all things personal finance. Remember, it’s not about being the wealthiest person on the planet, it’s about securing your financial future – for you and your family.