Stressed about your finances?
You’re not alone. Two-thirds of Americans aren’t optimistic about their financial outlook, and 87% of Americans report being stressed about inflation.
For those just entering the work, or partway through their career, the idea of financial management seems daunting. Where do you even begin to manage your investments? Or free up money for investing?
If you want to plan for your future, both short and long-term, these financial management tips will get you started.
Create a Budget
If you’re like many people, creating a budget is most likely not your definition of fun. But if you want to learn how to manage your finances, creating a budget (and sticking to it) is a must.
Everyone’s budget will look different. However, every budget should have a line-item accounting of all income and expenses. The purpose is to see how much money is coming in and where it’s all going.
You should know where every dollar is going. Some common budget items include rent or mortgage, car payments, credit card debts, food, and entertainment.
A common budgeting rule is the 50/30/20 rule. The goal is to spend 50% of your after-tax income on essentials (food, mortgage, paying off property, etc.), 30% on needed expenses and other things (eating out, internet bill), and 20% on saving (emergency fund, retirement, and other saving goals).
If you need help, you can use this budget calculator to help with your budgeting.
Build an Emergency Fund
Speaking of savings, you need an emergency fund.
Got a sudden medical bill? Need to get your furnace fixed? Lose your job and find yourself without an income?
An emergency fund can help in all of those situations. It’s the ultimate stress reducer.
Aim to build at least 6 months’ worth of saving in your fund. A year is even better.
Open a new account with your bank and make it your emergency fund. Don’t leave it in your spending account – it’s too tempting to dip into it for non-emergency uses.
Save for Retirement
As the saying goes, “Time in the market beats timing the market.” Saving for retirement is a huge long-term goal.
There’s no set rule for how much you need to retire. It depends on your expenses and expected lifestyle.
If your employer offers a 401K plan with a matching contribution, contribute at least up to the match (usually 3 or 5%). Of course, you can always contribute more. You can also contribute to an IRA (individual retirement account).
Even if you’re self-employed, there are options for self-employed IRA and 401K plans, such as a SEP-IRA or a Solo 401K.
The sooner you get started the better your odds are of reaching your retirement goal. Remember the power of compound interest.
Learn From Others
There’s a wealth of financial information out there, but it’s not all good. Try to learn from others that have successfully built their own businesses and increased their income.
You can check out this podcast, for starters. You can also read financial books or check out some financial advice on YouTube. Just be sure to vet your sources and make sure they are legit.
Learn Financial Management Now
Financial management isn’t just for retirees or the super-wealthy. Even younger folks in their 20s and 30s need it. Even better, the sooner they start, the better off they may be later in life.
For more tips on financial management and how to handle your money, check out the rest of our site.