Develop a single exciting mental picture of where you want to be in five years. That’s a personal finance expert and the author of Money Basics for Young Adults Don Chambers’ advice in a TIME article. Five years? But I’ve not really thought that far, you might think. Well, it’s time you do, suggest Don and other financial experts. Focusing on the future can help you make better decisions today and can help you tune your attitude towards your goals. It’s the first step in starting off your personal finance journey.
Developing an expert view on personal finance may not come easy for most of us. Some might find the whole topic hard to digest or too complex to not be bothered about it at all, but knowing about personal finance is important for each individual or family. And it’s not as complicated as you think!
Looking to make the transition from a personal finance newbie to an expert? Here are five tips for every expert-in-the-making.
Save every dollar
For David Ning, founder of the personal finance advice blog MoneyNing, the lesson of saving for the future was one that was taught by his parents. I understood that if I saved and practiced delayed gratification, I could afford bigger and more expensive items, he shares on his blog. For young people looking to be future millionaires, an article in The Wall Street Journal gives this advice- Once you hit the age of 25, save $5000 every year till you turn 70 at 6% compound average returns. If you wait till you’re 45 to start savings, the figure goes up to $18,000 a year! Not everyone can save up to be a millionaire, but saving towards your retirement is important. Bottom line-Start saving up early.
Invest where you can
Investment in stocks, bonds or mutual funds should be carefully planned to reap dividends and not losses. Most investments involve risk, so it’s better to know what you’re getting into before investing, advises federal website USA.gov. The pros and cons of different investments are given in an article by CNN Money. Think hard how and where you can invest!
Keep tabs on your spending
With Christmas round the corners, budgets might go for a toss! But ’tis the season to keep a check on your spending and stick to budgets. To know where all your money is going, write it all down in a ‘budget diary’ if you have to. In the book All Your Worth: The Ultimate Lifetime Money Plan by Elizabeth Warren and Amelia Warren Tyagi, there’s a simple rule of thumb you can follow when it comes to spending: 50% to needs, 30% to wants and 20% to savings. Look for ways you can spend less money on essential expenses like insurance. For example, if you’re above the age of 50, check out AARP car insurance rates that are much more affordable.
Instant satisfaction is often preached in our society today, but financial experts advise otherwise. Fresh graduates, wait for a few years before splurging on a fancy car or a big house! In a New York Times blog, Baltimore based financial planner Timothy Maurer asks young Americans to rethink about debts, especially college loans and taking a study loan that just about matches their expected pay in the first year of work.
Get your Smartphone to do the saving
This handy little gadget can be your saving buddy. There are a number of apps, resources and tools that you can download to get moving towards your aim of becoming a personal finance expert. Mashable has compiled 25 money-saving apps that both Millennials and tech savvy boomers will find useful.
The basic principle of personal finance is beautifully summed up by Don Chambers in the TIME article- Focus on the outcome you want which results in a changed attitude. This attitude when applied diligently over time, leads to true progress. You won’t transform into an expert overnight, but keep following these few tips and you can be sure of becoming a personal finance expert sooner than you think!