It doesn’t matter if you’re living from paycheck to paycheck or have your retirement completely funded, it’s important to know what you’re going to be doing with your money in the future. If there’s no plan, you’re much more likely to spend frivolously and blow through considerable amounts of money in a hurry. If you’re not sure where to start or have hit a roadblock putting together your financial future, keep reading for nine tips to help you get headed in the right direction.
1. Start Saving Now
It’s never too late to start saving money. Whether you’re wanting to build an emergency fund or for a home improvement project, try to tuck away a few dollars every time you get paid. Even if you start with $5 a week, that quickly adds up over time and will be $260 after one year. While this amount might not seem like much, getting in the habit of saving will help you learn how to cut back unnecessary spending, which will help you continue to save more and more over time.
2. Consider Savings Accounts Off Limits
Once you start saving, it’s easy to see the amount of money in your account and want to spend it. As it grows you start to have thoughts about upgrading to a bigger TV, taking a weekend getaway to the mountains, heading to Hawaii for a week, and even buying a bigger vehicle. Part of saving is having the self-discipline to continue growing your savings account so it’s there when you need it the most.
3. Build an Emergency Fund
We talked earlier about saving, which is a generally good habit to be in. Part of saving is building an emergency fund. It’s generally recommended by financial advisors that you build yourself a $1,000 emergency fund to have sitting in a savings account. This is to use if you have emergency medical bills, car repairs, or home repairs. A $1,000 fund is usually large enough to cover most emergencies. However, if it doesn’t cover the full amount, you won’t have to put nearly as much on a credit card as you would if you didn’t have that money sitting for such an occasion.
Beyond setting aside $1,000, you can continue to save money in case there are larger emergencies that need to be addressed. A fund that’s large enough to cover as much as five to six months of expenses is a nice little cushion to have. Should you or your spouse suddenly lose a job, you won’t feel like you have to go into panic mode because you have the funds that you need during the time you’re searching for work.
4. Contribute to Your Employer’s 4. s 401(k)
If you’re not thinking about retirement because you feel like it’s too far away to even consider, start considering it now. You’re never too young to start saving for retirement and if your employer offers a 401(k) match program, you’re missing out on free money. Let’s say that your employer will match a contribution up to 3% of your annual income. If you make $100,000 a year and you contribute the full $3,000 each year, you’re going to get an extra $3,000 on top of that. Let’s say that you work for a company for 30 years and you’re getting $90,000 for free. That’s a considerable chunk of change for not having to do anything besides contributing your own portion.
5. Consider Side Investments
One of the best ways to build a steady and sustainable income is to find ways to bring in passive income. Yes, investing can be risky, but most things that are good for you are. Find side investments that are good for you and your family. These can be stable stocks that you feel will grow over time and pay out a solid dividend when you sell them several years down the road. You can also invest in a small business in your area that’s looking to grow. While this brings the most risk with it, it likely brings the most reward, you can start your own business. Grow a business from home that brings income without putting in too much effort.
6. Open an IRA
Along the lines of planning for retirement, open an IRA. An IRA is an individual retirement account and you contribute independently of your employer. This is a great option for someone who doesn’t have a 401(k) option from the company they work with or simply wants to contribute more than what is allowed with the 401(k). You can open your own IRA with your financial institution and drop money into it with each paycheck, monthly, or simply yearly according to your financial plan. An IRA will make your funds available after you turn 59 and one-half years old.
Should you withdraw money from your IRA before then, the IRS will charge you income taxes on your withdrawal as well as a 10% penalty. Those are motivation enough to let that money sit and grow for as long as it needs to before you even think about touching it.
7. Read a Book on Financial Literacy
Depending on what you want to learn about financial literacy will depend on the type of book that you should read. From building wealth to debt management to those who simply want to get beginner advice on managing their finances, there’s something for everyone.
According to thebalance.com, Dave Ramsey’s “The Total Money Makeover” is the best for debt management. Ramsey has built a media empire by providing people with advice about why leasing cars, using credit cards, and taking cash advances are terrible ideas for anyone who is looking for financial freedom. Conversely, “Rich Dad Poor Dad” by Robert T. Kiyosaki gives lessons about how you can use a knowledge of assets and liabilities to build a tremendous amount of wealth without starting with a large sum of money. There are plenty of other options out there that will speak to you and your financial goals individually.
8. Consider a Reverse Mortgage
As you get older, retirement will probably start to feel like it’s creeping up on you. You might start to feel the onset of anxiety that you don’t have enough money saved up to live off of for what could be as long as 30 years. If this is the case, you can plan to get your finances in a place where you will qualify for a reverse mortgage. According to All Reverse Mortgage, one of the major benefits of a reverse mortgage is that it “allows borrowers to access a portion of their equity — tax-free — without having to make monthly mortgage payments.”
If you’re unfamiliar with a reverse mortgage, it’s when you take out a loan against the equity of your home. Rather than paying the lender back, the lender pays you in either a lump-sum one-time payment or receives monthly payments. Additionally, you don’t have to pay back the loan until you either sell and move out of the home or you pass away and your living relatives sell the home.
To qualify for a reverse mortgage, you must meet specific guidelines.
- Must be at least 62 years old.
- The home against which you’re taking to the loan must be your primary residence. This means that rental properties and vacation homes are not eligible.
- You cannot be delinquent on any federal income taxes or federal student loans.
- You must agree to set aside a certain amount of the loan or have enough of your own money to continue to pay your regular property charges that include taxes, insurance, and maintenance costs.
- Your home must be in good shape and meet property standards. If repairs need to be done, they must be complete before you can qualify for a reverse mortgage.
- You must receive reverse mortgage counseling from a HUG-approved agency to discuss your eligibility and the implications of the loan in which you’re about to receive.
9. Pay Off Debt
One of the biggest inhibitors you can have in your entire life when trying to get financially stable is debt. Think of it this way, when you go to work each week, you’re working a certain amount of hours each week just to give someone else your money. You don’t get to tuck it away for that Caribbean cruise you’ve been wanting to go on or even for a rainy day. Instead, that money is going straight to a credit card that was used to pay for an outfit that you don’t even wear anymore. Get out of debt and stay out of debt to be more financially stable now and in the future.
There are two parts to successfully putting together your financial plan. It’s best if you look to the immediate future and the long-term. Take the necessary steps to get your immediate future in order while keeping the road ahead on your radar. As you get your finances to where you want them to be, you’ll find that everything about your day is much less stressful and you even sleep better at night.