First Steps to Financial Security!
Financial security is something we all want. For many it seems an elusive goal. The truth is that you can reach and maintain financial security if you understand some basic principles and take the right steps.
Build a Bank Account Buffer
Whether or not you’re dealing with credit card or other personal debt, if you’re living paycheck-to-paycheck, one big bill or a week of missed work could be all that separates you from financial disaster.
The very first step you need to take is to build what I call a Bank Account Buffer. The idea of a Bank Account Buffer is simple: It’s an amount of money in your checking account that’s between $500 and $800 or two week’s pay (whichever is more). Even though you keep your Bank Account Buffer in your checking account, you need to think of that cash as untouchable.
Whatever you buffer is — $500, $800, or $1,500 — that amount of money becomes your new “zero”. You should never dip below it. Building a Bank Account Buffer will not only save you from costly overdraft fees but also begin to shift your mindset from always being broke to becoming used to having a financial cushion.
Invest a token amount for retirement
This may seem weird, but even if you’re $20,000 in credit card debt, I want you to open a retirement savings account. If you have a 401(k) or other kind of retirement account at work, that’s perfect. Otherwise you’ll need to open an IRA on your own.
Retirement is a vital but often-overlooked part of financial health. Even if you have more pressing money priorities, you want to get into the habit of saving for retirement early. Saving for retirement should be something you never have to think about, and the earlier you do it, the more your money can work for you thanks to compound interest.
If you’re paying down debt, you can start very small — even putting between 2 and 5 percent of your salary towards retirement is a good start. Once you’re out of debt, you’ll want to increase this percentage substantially.
One final note: If your employer matches contributions to your 401(k) or similar plan, try to contribute the maximum amount they will match. Failing to do so is like leaving a portion of your salary on the table.
– via Money Under 30
Next Steps – Your Greatest Financial Asset – You!
Right thinking is perhaps the single most important aspect to achieving financial security. Right thinking brings right actions which allow you to reach your goals.
The simple reason is that to make the best choices concerning finances it is important to think clearly and creatively and be able to understand priorities and stick with them. Here are some great guidelines to get you thinking on the right track to reach your financial goals.
Recognize Your Most Important Financial Asset: Yourself
Your skills, knowledge and experience are the biggest asset 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 is the most important factor in achieving financial independence and security.
For those just entering the work force, future career opportunities are as bright as they’ve ever been. The large number of retiring baby boomers is expected to create labor shortages. There will be room for advancement as companies scramble to fill the positions held by these aging baby boomers. Those who are in a position to take advantage of these opportunities will benefit the most.
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 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.
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 into the future. As such, the prospect of planning far into the future is a daunting task and in many ways, it’s often an exercise in futility for young investors.
Rather than setting long-term goals, set a series of small short-term goals. These goals could be a simple as trying to pay off credit card debt or student loans in a matter of months.
Maybe your goal is to contribute to your company’s pension plan with a set salary reduction contribution each month. Setting short-term goals that will help you to advance in your career is important in helping you get ahead.
Remember, these short-term goals should be measurable and precise. You can’t win a race if there’s no finish line. As you achieve your short-term goals, set other short-term goals.
Maybe you want to buy a house, earn a promotion at work or buy a new car. The constant setting and achieving of short-term goals will ensure that you reach your longer-term goals.
If your goal is to be worth a million dollars by age 40, you cannot achieve this without first achieving smaller goals like having $10,000, $50,000 or $500,000. – via Investopedia
Are you well on the way to financial security? Where will you start?