Some financial advice never goes out of style. Why? Because, although specific factors change over time depending on the economy and technology available, the foundational elements of financial health remain as solid as ever. The backbone of good money management is spending less and saving more. The challenge then becomes deciding where to allot your income to reap the most future benefits.
These five tips will help consumers get their priorities straight when it comes to personal finance.
Enroll in Automatic Savings Plan
Saving can seem daunting, especially if nearly all of your paycheck goes toward meeting your day-to-day needs. But it’s a good rule of thumb to “pay yourself first.” Setting up automatic payments from your checking account to your savings account will help you grow your savings without requiring any further action from you.
Furthermore, as Refinery29 points out, “If you automate savings, you may not even notice the difference.” At the very least, you’ll have to withdraw this money out of your savings account manually if you want to spend it—an extra step that may act like a deterrent for making non-essential purchases.
Many experts believe it’s healthy to save 20 percent of your take-home pay after taxes. The exact amount will depend on your income and financial obligations but saving some is always better than none.
Focus on the Future
It’s easy to get caught up in your daily routine, including spending money to fulfill immediate needs and wants. While this habit does keep you afloat in the present, it does little to solidify your financial future. It’s important to work on long-term goals, even as you focus on short-term spending.
Andrew Housser, CEO of Freedom Financial Asset Management, asks himself where he wants to be in 1, 3 and 5 years, then takes actions to move himself closer to making those visions a reality. The timeline will vary depending on your goals. For instance, you may find yourself focusing heavily on paying for a trip abroad in six months. Or, you may be facing retirement in 10 years, meaning you’ll want to redouble your efforts in that arena. The point is: Never forget to look to the future, even if you’re living comfortably now.
Streamline Your Entertainment
It’s easy to rack up entertainment costs these days, as more content is available on demand than ever before. But many are surprised to find out how much entertainment subscriptions are costing them when they sit down and really look at the receipts. For example, switching to a streaming service is typically cheaper than cable. But if you’re subscribed to multiple streaming services at once, it likely pays to cut down. Think quality over quantity, then trim the fat to free up extra money in your budget.
Pay Off High-Interest Debts First
Let’s say you have four credit cards, each with an outstanding balance. Which one should you pay off first? Well, the debt avalanche method recommends paying the minimum balance on all debts each month while chipping away at the one with the highest interest rate first. Once this debt has been repaid, you can start doing the same with the next highest interest rate. This strategy tends to help consumers pay down debts faster because fewer fees rack up in the meantime.
Take Advantage of Compound Interest
Nothing builds a retirement fund like compound interest; this is why it’s so important to start saving as much as you can as soon as you can. Earmark part of each paycheck for retirement so you capitalize on the benefits of compound interest.
These five financial tips are timeless because they aim to help consumers optimize their short-term financial strategy and set themselves up for the future.
