Do an individual who is in his early twenties and has started earning in his life need to have life skills such as how to manage money and save for retirement? The answer is a definite yes; every kid should know that his student loan payment history will determine whether he can buy or sell a house in the future. Perhaps not knowing how to manage and save money in the early part of life is one of the reasons we see a lot of videos and articles trending now titled ‘things I wish I knew in my twenties,’ ‘things I wish I knew in my thirties,’ ‘things I would tell my younger self,’ etc. In the ideal world, parents and teachers should teach a child how to develop money management skills right from childhood in school, but this sadly is often not the case.
The silver lining is that it's not too late to start, doesn’t matter whether you are in your forties, fifties or sixties; It’s all about cultivating certain habits related to money. Habit is a behavior pattern acquired by frequent repetition; so if we start with baby steps, we can eventually become good at handling money and be financially secure. Let's look at a few pointers that might help you achieve the goal of financial freedom.
Who doesn’t want to retire early and have a peaceful permanent vacation? In reality, what happens is most of the people delay saving money because of changing expenses in life, they are not able to retire even when they are eighty. It is also extremely important to have an emergency fund for a rainy day; one shouldn’t be living from paycheck to paycheck. Save at least two or three months salary equivalent in the emergency fund in case of an unforeseen lay off or medical need.
Save for retirement by building your nest egg, take advantage of the 401K plan if you have the option. Start a health savings account (HSA) which has tax advantage and can cover your medical expenses.
If you are married, you should discuss all expenses and financial goals with your spouse, you can decide on a budget before making important purchases. It’ll encourage the other partner to align with your financial decisions and have transparency while handling financial matters.
Credit cards are a good source of money when needed, but can turn into a double-edged sword if not handled well. Credit cards come under unsecured debt and hence has high-interest rate on them sometimes even up to 45%. It will reflect badly on your credit report if you utilize more than 30% of the available credit line; credit score will majorly ding if the monthly payments are late or missed. Good way to use a credit card is to maintain a low outstanding balance if not zero; make monthly payments on time without fail and control impulsive shopping with plastic money.
You can make good use of technology and use these apps to learn about money management skills, keep a track of expenses, making investment decisions and manage all accounts under one roof.
a.) Mint is a budgeting and investment tracking app from the house of Intuit Inc.; its free of cost and helps you to manage all your accounts in one place, pay bills on time, for basic investing and monitor credit score.
b.) Wally is a free app you’ll love if you are particular about keeping track of your expenses. The best thing about the app is you don’t need to manually enter the details, instead take a picture of the receipt to enter data and the GPS on the device will input the location information also.
c.) Homebudget is an app with a very easy interface; it’s to track cash flow and manage investments. It has the great feature called family Sync, using which you could sync all the devices in the household to exchange income and expenses information with each other thereby enabling you all to work together within one single family budget.
A good healthy credit is vital for all individuals for future borrowing and selling; it is good practice to check your credit score periodically. It’ll motivate you to be exercise caution when using credit; you could also detect identity theft and report it without any delay.
Being wealthy need not necessarily mean one is money smart; hence you could hire someone who can make your money work for you. Hire an expert advisor if you are overwhelmingly in deep debt and wants to come out of it. Financial consultants will help you devise a plan to become debt free, and they can also advise on how to make good investments.
It’s hard to keep a track of all expenses, maybe a coffee in the morning, $10 loan to someone, lunch for office all of will add to some avoidable surprises at the end of the month. So keep a journal of all daily expenses, it will help to develop a positive relationship with your finances. People who have a lot of money also love their money; they see it grow exponentially, find joy and prosper in the process.
Using a budget plan is one of the most basic of things you should do to master money management skills. The mistake what most people do is as soon as they get a paycheck they start spending, bigger the paycheck more the spending. They don’t think about debt reduction and keep that task for later, they overindulge themselves and splurge, justifying by saying that they have worked hard to earn the money. What the successful folks do when they get a paycheck is divide and allocate it into categories like tax, home, and business expenses; a small chunk goes into retirement saving, emergency fund, cash account for real estate, etc. Over time you will see your money grow if you follow this plan, it is vital to stick with the plan and not deviate from it.
First, we got to understand the difference between good debt and bad debt; credit card with 20% interest is stupid debt, whereas you bought a house on 3% mortgage rate is excellent debt. Credit cards and store cards have the highest interest rates, so you got to face the wind and pay them down. It may put you under a lot of stress for now, but in the long run, you are doing yourself an enormous favor.
Money management skills are not acquired overnight; it develops over a period through patience and perseverance. On an average, you should try to save 20 to 30% of your income from each paycheck which may be hard initially because many have deeply rooted old habit of spending all of the income. Take a firm decision and start saving even if it’s with a very small percentage of the income, put that in a saving account and never touch it. What it does to you is, you will start feeling more confident mentally because of the saved money even if it’s a small amount. You will start questioning your expenditures and give more importance to budgeting.
All the things that are needed to master money management skills require some work; it’s not the kind of thing a lot of people look forward to doing. At times it can be boring and elaborate, but we should put our minds into it and start to manage money with clear planning. It will be useful during times of hardship like the great recession that happened in 2007 or a medical emergency. We owe it ourselves as individuals to enjoy true financial freedom; we should aim to be financially secure at least if not rich.
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