Being
financially secure enough to enjoy your life in retirement is the last
thing on the minds of those under 30. After all, with the stress of all
the expensive "firsts" that often come about during this period, like
purchasing a car, buying a house and starting a family, it's hard to
even think about saving for the future. However, working toward
financial security need not be an exercise in self-deprivation, as many
people assume. Attaining this goal even has some immediate benefits, as
financial insecurity can become a serious source of stress - something
20-somethings have enough of already. So can you
achieve long-term financial security without sacrificing your short-term
goals? Read on for 10 tips on how to do just that.
1. Have FunEnjoy
yourself while you are young - you will have plenty of time to be
miserable when you are older. Living a successful, enjoyable and happy
life is about achieving a proper balance between time with family and
friends and between work and leisure time. Striking a proper balance
between your life today and your future is also important. Financially,
we can't live as if today was our last day. We have to decide between
what we spend today versus what we spend in the future. Finding the
correct balance is an important first step toward achieving financial
security.
2. Recognize Your Most Important Financial Asset: YourselfYour
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.
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'll 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.
Become
a planner. Set goals and develop an action plan to reach them. Even the
process of writing down some goals will help you to achieve them. Being
goal oriented and following a plan means taking control of your life.
It is an important step toward improving your financial independence and
security.
4. Set Short-Term Goals - Long-Term Goals Will Take Care of ThemselvesLife
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.
5. Planning For Retirement: Fuggetaboutit?Just
out of school, retirement planning is the last thing on your mind. So,
if you have to for now, just fuggetaboutit. 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 take a few steps
now to start saving, like setting up automatic monthly contributions to a
retirement plan like an employer-sponsored
401(k) or your own
Roth IRA,
compounding will work in your favor, which makes reaching your goal much easier.
6. Make Sure Your Lifestyle Costs Lag Your Income GrowthMany new graduates find that in the first couple 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 they need. Rather than using excess income to buy
new toys and live a more luxurious lifestyle, this excess could be put
toward reducing debt or adding to savings. As you advance in your career
and attain greater responsibility, your salary should increase. If the
cost of your lifestyle lags your income growth, you will always have
excess cash flow that can be put toward paying down debt, making
investments, saving for a home, or achieving any other financial goals
you may have.
Where many people get into trouble is
that they feel 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; instead, you will
naturally have excess cash flow because you earn more than you need to
live on. In addition, keep in mind that trying to keep up with the
Joneses is always a recipe for financial failure. For all you know, you
may make more than the Joneses, who may be funding their lavish
lifestyle with debt anyway.
The
good life should be a reward for your hard work, good fortune and
successful planning, not something that you are entitled to. Once you
have established a certain lifestyle, it is psychologically difficult to
lower it. It is very easy to raise it.
7. Become Financially LiterateMaking
money is one thing; saving it and making it grow is another. Financial
management and investing are lifelong endeavors. Making sound financial
and investment decisions is important for achieving your financial
goals. The more knowledgeable and experienced you are in financial
matters, the fewer mistakes you will make. Research
has shown that people who are financially literate end up with more
wealth than those who are not. There is a strong monetary incentive for
becoming financially sophisticated. 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 RisksTaking
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 risks might 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. Starting a new company, working for a small
startup company, or investing in
high risk/high return stocks, is easier to do when you're young. Younger people can afford to take
risk,
and the same opportunities might not be available later in life. As
people get older and assume more family responsibilities like paying off
the mortgage or saving for the kids' education, many are forced to play
it safe and are unable to capitalize on riskier opportunities that
present themselves. Taking calculated risks when
you can afford to do so is necessary to get ahead financially. Playing
it safe might be the bigger mistake in the long run.
9. Borrow Money For Investments - Never to Finance a LifestyleAs
mentioned before with the Joneses, you should never borrow to finance a
lifestyle you cannot afford. Using credit for a life you feel entitled
to is a losing proposition when it comes to building wealth. The
constant borrowing will assure that there is no money available for
investing, and the added
interest expense of borrowing further increases the cost of the lifestyle.
Borrowing
money should be used only for investing - where your gain will outrun
your borrowing costs. This might mean investing in the literal sense
(for stocks, bonds, etc.) or it might mean investing in yourself for
your education, extra training, to start a business or to buy a house.
In these cases, borrowing can provide the
leverage you need to a reach your financial goals faster. Borrowing to meet
short-term desires is counterproductive.
10. Take Advantage of Financial FreebiesNot 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. You can also look for (legal) ways to take advantage of tax laws. For example, contributing to an
individual retirement account
(IRA) will result in a tax savings - in effect, the government is
giving you free money to provide an incentive to contribute. There is
also an incentive to invest in stocks because of favorable tax treatment
on capital gains and
dividend income.
ConclusionAchieving
financial independence is a goal most people strive for. It is not
necessarily easy, but it is achievable if you understand your
priorities, set achievable goals and take the proper steps toward
reaching them.
