Being financially secure is the ultimate goal of every individual. However, most people just don’t know how to achieve this. We explore ways to attain financial health according to the world’s leading source of financial content on the web, Investopedia.
1. Balance between work and play
Enjoy yourself while still young – you will have plenty of time to be miserable when older. Living a successful, happy life is about finding a balance between time with family and friends – and between work and leisure.
Striking balance between your life today and your future is also important. Financially, we can’t live as if today is our last day. We have to decide between what we spend today and what we spend in the future. Finding the correct balance is an important first step toward achieving financial security.
2. Recognise your most important financial asset — Yourself
Your skills, knowledge and experience are the biggest assets you have. The value of your future earnings will dwarf any savings or investments you might have for most of your career.
Your job and future career are the most important factors in achieving financial independence and security. For those just entering the work force, future career opportunities are as bright as they have ever been. Look at yourself as a financial asset.
Investing in yourself will pay off in the future. Increase your value through hard work, continual upgrading of skills and knowledge and by making smart career choices. Efforts to improve your career can have a far bigger impact on your financial security than tightening your belt and trying to save more.
3. Become a planner, not a saver
Research has shown that those who plan for the future end up with more wealth than those who do not. Successful people are goal oriented. They set goals and develop a plan to achieve them.
For example, if you set a goal to pay off your student loans in two years, you will have a better chance of achieving this goal than you would if you merely said you wanted to pay off your student loans, but failed to set a timetable.
Even the process of writing down some goals will help you achieve them. Being goal-oriented and following a plan means taking control of your life and financial independence and security.
4. Set short-term goals — long-term goals will take care of themselves
Life holds many uncertainties – and a lot can change between now and 30 years from now. As such, the prospect of planning far into the future is a daunting task for young investors.
Rather than setting long-term goals, set a series of small short-term goals that are both measurable and precise. As you achieve your short-term goals, set new ones. The constant setting and achieving of short-term goals will ensure you reach your longer-term goals.
5. Planning for retirement
Just out of school, retirement planning is the last thing on your mind. So if you have to for now, just forget about it. If you follow the other tips, you will not only be more financially secure and prepared in the short term, but you will also be financially prepared for the distant future as well.
However, if you can take a few steps now to start saving — try setting up automatic monthly contributions to a retirement plan. If you implement this pay yourself first ideal, you won’t have to worry about how much you’re contributing.
The most important thing is to develop the habit of saving. You can increase your contributions when your income rises or when you have achieved more of your short-term goals.
6. Make sure your lifestyle costs lag your income growth
Many new graduates find that in the first couple of years of working they have excess cash flow. Still used to their more frugal student spending habits, it is easy to make more money than needed.
Rather than using excess income to buy new toys and live a more luxurious lifestyle, put the money toward reducing debt or adding to savings. If the cost of your lifestyle lags your income growth, you will always have excess cash flow that can be put toward achieving financial goals.
Where people get into trouble is by feeling entitled to a standard of living that exceeds what they can afford. However, if you keep your standard of living below what you earn, you won’t have to cut back to accumulate money.
7. Become financially literate
Making money is one thing, saving it and making it grow is another. Financial management and investing are lifelong endeavours. Making sound financial and investment decisions is important for achieving your financial goals.
Research has shown that people who are financially literate end up with more wealth than those who are not. Taking the time and effort to become knowledgeable in the areas of personal finance and investing will pay off throughout your life.
8. Seize the opportunities: take calculated risks
Taking calculated risks when you are young can be a prudent decision in the long run. You might make mistakes along the way, but remember, mistakes are the lessons of wisdom.
You often learn more from your mistakes than from your successes. Also, when you are young, you can recover faster from financial mistakes, and you have many years to recover.
Examples of calculated risk include: moving to a new city with more job opportunities, going back to school for additional training or taking a new job at a different company for less pay but more upside potential.
9. Borrow money for investments – never to finance a lifestyle
Using credit for a life you feel entitled to is a losing proposition when it comes to building wealth. The constant borrowing will assure there is no money available for investing, and the added interest expense of borrowing further increases the cost of the lifestyle. Borrowed money should be used only for investing – where your gain will outrun your borrowing costs.
10. Take Advantage of financial freebies
Not many things in life are free. If you belong to a company pension plan, take the free money it offers and make sure that you contribute at least up to the maximum of what your company will match. -Compiled by Seth Onyango