Despite every single individual trying to attain financial freedom and stability, the subject is not yet taught in our schools. Thus, it is not uncommon for young people to be clueless about personal financial planning.
It is also not uncommon for a high school student to graduate in an American inner city and barely be able to read because of political correctness in public schools but this is another topic. See The Wire – the 5th season on this! That was junior high school students in Baltimore but the high schools are just as rough.
Moreover, if you are one of those people who are just stepping into this hyper-competitive, time-strapped world, or someone who has been working for a couple of years without any concrete financial goals, the following tips will come in handy.
Self-Control is the Key
Credit cards make it so easy to purchase anything on impulse. And if you are an impulsive buyer, like most Americans, you might be carrying a debt of $15,000 just on credit cards. Not good but this is not uncommon either!
Most of this can be avoided. Avoid eating at fancy restaurants, buying that expensive pair of jeans, or that new smartphone. Learn what delayed gratification is. Always save and purchase anything you wish with cash. Do not buy a couch you cannot afford and make monthly payments on it, for instance. You have to pay interest on that couch so handling your money this way is nonsensical. Pay in cash or do not buy. Go buy some cheap chairs for temporary use and save up to buy the couch.
One of the most neglected principles of personal financial planning is emergency funds. No matter the amount of debt you are carrying in the form of student loans, mortgage, credit cards, car loan or a personal loan, ensure you set a certain amount aside for emergencies.
Also, just forget that that the money exists. Treat it as a non-negotiable monthly expense, like your credit card bill. And use a high-interest saving account, money market account, or a CD for building up an emergency fund, or else inflation will erode the value of your savings.
Start Retirement Planning, NOW
If you have nothing saved for retirement, now is the time to start on that. Ideally, you should start your retirement planning the moment you start earning. The sooner you start investing in retirement products; the bigger your retirement kitty will be as long as you do not invest in Solyndra! Company-sponsored retirement plans are one of the most effective tools. Mutual funds, equities, and what not are other options to consider. Again, the mantra is to start early.
Keep the Tax Monster at Bay
Taxes seem to be omnipresent. Even before you get your first paycheck, learn how much of it will go into taxes or what will be your take-home pay. An increase in pay due to promotion or job hopping does not mean you will have extra disposable income like you are hoping. Trump will cut taxes but taxes will still be a part of our lives.
Furthermore, it might happen that you have moved from a low tax bracket to a higher tax bracket which increases your tax liabilities significantly making your increased pay not as impressive as you were hoping it would be.
You should also work with an accountant that can give you concrete tax advice or educate yourself on this topic if you do your taxes by yourself.
Never Ignore Health Insurance
A single emergency room visit can set you back by thousands of dollars, and without health insurance, it would be difficult to manage healthcare costs. Just like an emergency fund, it’s essential to have suitable health insurance for you, and if applicable, for you family too.
Yes, because of the ACA America’s health care picture is not impressive (it will hopefully get better in the years ahead but that is another topic) but you still need insurance regardless.
Also, unlike your wealth, your health will erode as your age progresses thus ensure you exercise regularly to keep yourself fit. As they say, “Health is wealth.”
Guard Your Assets
Guarding your wealth is as vital as acquiring it. A simple mistake can cost you your entire life’s savings. For instance, driving without car insurance and then you cause a wreck can be financially painful.
Similarly, if you rent your property, having renters insurance is of paramount importance. Any damage to the property due to burglary or fire will mean substantial losses to you. If you employ a financial planner, choose fee-only rather than commissioned based financial planner. It will help ensure that you will invest into financial products that are beneficial to you.
It is not difficult to plan your financial life, a little effort in educating yourself will reap rich dividends. Never invest in complex financial products if you do not understand them and if your name is Napoleon Dynamite, do not invest in anything! Protect yourself and your assets with the necessary insurance and avoid impulsive buying.
Follow these six principles to come closer to enjoying a stress free financial life.