When you’re young and strong you feel like the world is at your feet. Too often this makes us forget that within a blink of an eye, we will be at the dawn of the day that we don’t have that strength, vitality and stamina anymore. This is the course of nature, something that will inevitably happen, and there is little we can do about it. But the one thing we can do, is making sure that when that day comes, we have the means to go on without the burden of financial worries on our mind.
The key to having a solid financial future is to start as young as possible. The sooner you start planning your financial future the better, and these tips will definitely help you to a good start.
The best way to start with securing a solid financial future is to implement the 50/30/20 rule. This rule proposes that you divide your net-income in three parts, 50%, 30% and 20%. First you start of by putting at least 20% of your available money aside for your financial priorities such as paying off debts, and saving or investments. The second step is using no more than 50% of your money for the things you need, such as your groceries, rent, and utilities and so on. The remaining 30% can be used for the things you want. These are the things you don’t necessarily need, but would like to have because they add value to the quality of your life.
As mentioned in the 50/30/20 rule, saving is the first thing you should think of. One of the best way to save for the future is to have more than one savings account. Use one just for saving for retirement and another one for financial contingencies which may occur in life. By doing this, you make sure you don’t have to use your retirement savings along the way. Think about how much money you would want to have in your bank account when you retire and discuss with your banker or financial advisor how much you need to save. For example, if you’re 25 and you start saving USD 100 a month with an annual interest of 6%, you will have USD 138.000 in your account by the time you are 60.
You often hear young people say that life is too short and you need to enjoy it as much as possible. This is very true, but while enjoying life, be sure that you invest some time and money in developing your own human capital as well. Allocating a portion of your available money to invest in continuous learning and self-development always pays off. It can help you land a better job or get a promotion, which will lead to a higher income. The more you earn, the more you can spend and of course, the more you can save.
Developing a stronger sense of self-control when it comes on spending is a tip we cannot forget to mention. Nowadays we are literally surrounded by all kind of cool things that would make anyone feel better, more attractive, and even more confident by just having it. The two big questions you should always ask yourself are “Do I really need it” and “Do I really need it now”. And don’t just answer this question a mere yes, but also see if you can convince yourself why you need it. Consider the benefits of spending the money on the item you so desire against the benefits of putting the money on your savings account.
The famous actor Will Smith once said “Too many people spend money they don’t have, to buy things they don’t want, to impress people they don’t like”. You can be a lot smarter than that!