Your financial future depends on all of the little choices you make day in and day out. Even something as simple as putting away monthly savings can profoundly affect your retirement. Saving, avoiding debt, and having a plan are all great ways to set yourself up well financially.
While most people generally know how to win with money, putting those rules into practice can be very difficult. Below are several tactics that you can use right away to help set yourself up for a bright financial future. Not every tip will work for everyone, but even implementing a few of these tactics can significantly change your finances for the better.
1. Get clear on your financial goals.
If you just start saving or making money changes without any clear goal, you are not likely to be very successful. Instead, you need to decide what you want your future to look like when it comes to money. Do you want to retire early? Do you want to work part-time? Maybe you love your job and want to continue working indefinitely, but you want to have money to give back to others.
Whatever your goal is, you should have a clear picture of what you want your financial future to look like. Having an end goal in mind will help you stay motivated and focused as you pay off debt, save, or invest.
Keep a visual reminder of your goal somewhere you will see it regularly. That visual reminder can be a full vision board, a picture of one specific thing, or even family photos.
2. Divide your goals into manageable portions.
Having a huge goal that will take you decades to achieve can be extremely intimidating. Instead of only thinking about that huge goal, divide it up into smaller, more manageable goals. These should be based on a timeline, such as ten years, five years, one year, and one-month goals.
All of these smaller goals will add up over time, and you will get closer to your huge goal every time you hit one of these smaller goals.
3. Educate yourself and create a plan to hit your goals.
Once you have goals that are divided into manageable timeframes, you need to create a plan to hit them. For some, that means determining how much you need to save to reach your big goal. For others, your plan might focus on paying off debt before you can start saving.
Still, others might be ready to consider investment opportunities to make their money work harder for them. They might be considering both traditional and alternative investments to increase the return on their investments.
Because everyone starts in a different place, everyone’s plan will be different. It might be a good idea to do some research on plans that will work for your situation. There are many resources online and lots of personal finance books available at your local library. Choose a plan that will work for you and your family.
4. Create and stick to a budget.
No matter what kind of financial plan you use, most will tell you that you need to create a budget and stick to it. A budget starts with your income and decreases that income by each expense that you have. Essentially, a budget tells your money where to go and how you want to use it.
Having a budget is vital. A budget is one of the best tools you can use to get a handle on your money. Instead of wondering where your money went, you dictate where it will go.
A Quick Budgeting “How-To”
You can create a budget based on whatever time frame works for you, but most plans suggest a monthly budget. If you get paid every two weeks or once per week, you can also create smaller budgets within the month, if that works for you, as well.
To create a budget, start with your income. Then, subtract your regular expenses from your income. The number you are left with is how much you have for discretionary spending, like going out to eat or seeing movies.
If you don’t have any leftover after your regular expenses, you need to find places to cut back. Spending more than you make is never a good way to set your financial future up well.
The Connection Between Budgeting and Investing
Your budget will help you decide how much you can save and how much you can invest at regular intervals. The sooner you can invest, the better—compound interest builds up significantly over time, and you want to take advantage of that benefit as soon as possible.
5. Pay off debt.
In 2021, the average household in the United States owed $155,622 (over $15 trillion) in credit cards, mortgages, home equity lines of credit, student loans, and other obligations. That number increased by 6.2% from 2020.
It is difficult to make any progress while you are still paying off things from your past. Paying off your debt and avoiding taking on more debt is one of the best things you can do to set your financial future up well.
When you are not using your income to pay debt payments, you can make progress much faster. It may be difficult, but not owing anyone anything is one of the quickest ways that you can save and invest.
6. Save for an emergency fund.
An emergency fund is an easily accessible pile of cash that you can use to address an emergency situation. Emergencies include unexpected medical expenses, your car breaking down, or your refrigerator dying. Having a fund to address these unexpected expenses allows you to avoid putting those costs on a credit card or going back into debt to pay for repairs.
The general rule is to have three to six months’ worth of expenses put away in your emergency fund. That way, if you are suddenly unable to work, you still have money to use to pay your regular bills.
Your financial future depends on the small choices you make today. Educate yourself on personal finance plans so you can hit your financial goals. Pay off debt and create an emergency fund, so you don’t go backward while you continue to save and invest. Sticking to these basic ideas will set you up well for years to come.