Having just finished a Master’s of Science in Financial Planning I have a unique insight on the following bits of advice when it comes to money. As a Gen X person myself, I tend to think more on the younger side of things when it comes to financial planning. I hope that the following will shed some light on money and how it might best be viewed and help you to be smarter with your hard earned money.
The first bit of knowledge is always to pay yourself first. That means to have a portion of your salary or paycheck automatically set aside before you even see it in your account. Before you even pay your bills, this needs to be done so you will save for future needs. Be that a car, education or retirement. By setting this up on an automatic system, you will be more inclined to save and stay with the plan.
Second, it makes more sense to focus on your income rather than cutting expenses. Let us face it; it is much easier to earn a couple extra hundred dollars than to figure out where to cut expenses. There are numerous ways one can increase their income ranging from asking for a raise, to seeking a better paying job to even starting a side business that will produce extra money for you on a regular basis. The key here is to seek out ways to increase your income, and it is perfectly okay to get creative with the process.
Up there with paying yourself first is investing in yourself now and defer saving for retirement for a little while if necessary. What I mean by this is to seek out additional education or certifications that will enable you to increase your earning power. This approach goes hand in hand with focusing on increasing your income. By acquiring additional marketable skills, you can increase your ability to command a higher salary or a higher paying job. This is best done when you are younger but if you happen to be older do not rule this approach out just due to your age. Second and third careers are becoming more common in today’s workplace.
If you work for someone else, you are making them richer as they own the company. Entrepreneurship is the fastest way to financial independence. If you are not able to work for yourself, full time look into part-time gigs that can supplement your salary from your employer. Who knows, maybe you will one day be able to concentrate full time on what started as a side hustle and quite working for someone else.
Do not fall into the trap of only planning for the future and forget to live in the moment. As a financial planner, it is my job to have you think about your retirement now and start planning for it as soon as possible. But it is just as important to have fun in the here and now as well. That could mean saving up for a vacation or a weekend getaway, but it is important to have some rewards that can be enjoyed now and not ten years from now. It is extremely important to do something that makes you happy in the present.
I am a fan of budgeting and all that goes with it, but I know many people think budgeting is just a long four letter word. If you do not want to budget, at least keep track of your spending because if you do not know where your money is going, you will never be able to be financially free. I have an amazing budget spreadsheet that is free for signing up for my email newsletters and information that I send out from time to time. It comes with a really handy snowball debt reduction spreadsheet as well. Feel free to sign up today and enjoy these powerful tools to help you track your finances and get on top of your financial freedom.
Many people think that home ownership is the way to go, but it is not always the case if you are young and just starting, out it does make more sense to rent rather than purchase a home. One reason is many younger people will tend to change jobs more frequently and moving and selling a house is not all that easy or cheap. Also, homes come with any additional costs that renting allows you to avoid like maintenance and upkeep. Buying a house is a large commitment and not one that should be entered into lightly due to it illiquid nature.
If you are working for a company that offers a 401(k) that has matching, always take full advantage of that deal. Otherwise, you are leaving free money on the table. Always invest up to the match in a 401(k) and then more after you fund an Individual Retirement Account, then go back to the 401(k) to contribute more. But regardless always take full advantage of a company match program.
Another helpful tip that may seem obvious is to live well below your means. If you get a raise invest or save it before you even see it. Bonuses are the same way, spend a little to reward yourself but save the majority. Most people make more and come up with an excuse to spend more when there really is no need for such action. If you survived on $40,000 a year and got a $5,000 raise, save or invest the raise and live on the same $40,000 a year.
Try to avoid any and all debt. No debt is really good there is debt that is just better than other types. A mortgage or student loans may be considered a better form of debt but all debt needs to be paid off as soon as possible or at least as fast as it is practical. Someone with no debt is always better off financially than someone who carries debt from month to month.
And the last part is one that many people do not think of or want to do, but that is work with a financial planner. And here I suggest a fee-only planner who will only charge you for what you need and not try to sell you unwanted or un-needed financial instruments. A good financial planner will keep you on track and aid you when you go astray from time to time. Also, it is a good idea to have an unbiased opinion when it comes to your financial plans and desired outcomes.
If you need any additional information, feel free to contact me directly or leave a message.