From the time you got your first job and earned your first paycheck, it is likely you were told to save your money. If you had responsible parents, hopefully, they provided more advice than just saving it. For instance, you worked hard for your money, but before you spend it, save 20% of it, give away 10%, and spend the rest.
Note: I also recommend opening an investment account and regularly purchasing small shares of stock. Time is on your side.
If this advice was well received and you listened to your parents, you would have a better concept of how money works.
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Most students who work, they spend their paychecks ASAP on new items they’ve been wanting. Perhaps it is a new pair of jeans or that stylish shirt.
This article isn’t to shift blame towards anyone. To be frank, most households are in debt and have no room to blame others anyway.
The best advice to give to one another is what you will read below. In this blog, we will explore how to establish milestones for
Paying off debt
Improve your Savings or Retirement
Establishing Age-based Goals
When runners train for a marathon, they must work their way up to running the distance. The goal is to establish milestones by specific dates. As you work to reach each milestone, before you know it, the hard work and diligence carry you towards your goals.
When it comes to establishing milestones for paying off debt, there are moments when having a goal to pay off debt isn’t enough. A trick that I like to use is to establish date markers that will push me to pay off a certain amount of debt by a set date.
For example, if you have $1,500 in credit card debt, it can feel defeating to know it may take you over a year to pay this off. This mindset may demotivate and rid any inspiration you may have to wipe out this debt. Instead, plot out the $1,500 on a line chart and determine how much you can pay off each month. If you know you can put $100 each month towards paying this debt off, then your milestone is to push this balance to $1,400 by April.
Now if you are thinking, what about the interest? Stop focusing on that and pay attention to the balance. Like a runner facing an upwind battle, he or she must hit that mile marker. Your mile mark is the $1,400 so you may need to push to pay down a $100 plus some interest.
After completing this milestone, you will gain a new sense of pride that you made progress, but you must now regain focus on reaching $1,300. Since the interest charged will be lower, it will become slightly more relaxed. Also, you should see an increase in your credit score as your available balance increases.
Since I am a visual person, create a picture like one below, or you can download this one for free. After reaching each milestone achievement, color in a section block to remind you consistently of your goal.
The same process mentioned above can be applied to saving money. Whether you are buying stocks regularly or putting money away for retirement, you need to have a consistent goal each month or every paycheck.
One of the best money tips I have received is to pay yourself first. As a creature of habits, consumers tend to pay their bills first. Any money left over is spent on other items. This has a dangerous and adverse effect as we become accustomed to the habit which unintentionally raises our standard of living. Before you know it, you are living paycheck to paycheck.
By paying yourself first, you redefine your finances as you build consistency in financially protecting your future and force yourself to reduce your expenses. Your retirement and savings will grow faster as you are making your future a priority.
A few tips for starting paying yourself first are:
1. Determine the monthly amount to reach your maximum annual retirement contributions For those under the age of 50, the 2019 annual contribution limit is $19,000. This equates to $1,583.33 per month. If one is 50 and older, the contribution increases to $25,000 per year or $2,083.33 a month.
You can also put money towards an Individual Retirement Arrangement (IRA), sometimes called the Individual Retirement Account. You can put up to $6,000 ($500 per month) per year unless you are 50 and older in which case you can increase it by a $1,000 for an annual limit of $7,000 ($583.33 per month).
2. Maybe you are not concerned about your retirement savings and just interested in saving money. Perform the same process as mentioned above with paying off debt. If you have a goal to keep $25,000 in 12 months, find ways to save $2,083.33 per month until you reach your goal. For the months, you fall short of your goal, be creative in finding ways to make up for the gap. In the blog article, 15 ways to make money, I list several tips on how to earn additional income. Some of the methods can produce fast cash, other methods take a few weeks. Paying off debt or saving money doesn’t have to feel like a defeating task. With the fast-paced world, you have become accustomed to getting things quickly. When it comes to money, slow and steady is the best approach. It is the best approach because it works time and time again. Age-Based Monetary Targets Everyone has a different story, a separate path, and a different financial road. Not every person will have the exact same life circumstances as her or his neighbor. Such conditions can vary based on age, maturity, or life progression. Here below, I will outline some general financial milestones based on age. 20's At this early start in life, you are learning the ropes of your new career, paying off college debt, and should take advantage of paying off loans/debt as quickly as possible before settling to begin a family. Once your debt has been eliminated, start aggressively saving money for an emergency, down payment on a mortgage, and your retirement. 30's In your 30's, priorities have shifted towards building a family and progressing through your career. Perhaps you have started a family and purchased a home. If you haven't already, purchase term life insurance in the event, the worst occurs.
Having term life insurance will financially alleviate some stress and burden by purchasing enough to pay off any remaining debt, mortgage, and funding your children's tuition.
During this period of your life, continue to aggressively build your nest egg allowing more time to work on your side in the investment markets. 40's You have made a name for yourself in your community and your workplace. The big focus is retirement as less than a few decades remain. Discuss with a financial planner about any further actions may need to be addressed as this allows you time to take action while you have employment.
You may also be faced with your children about to attend college or in college. Are you taking advantage of the 529 College Savings Plan?
Reassess if you can pay off your mortgage early.
50's Your investments need to be managed more conservatively as retirement is on the horizon. Also, ensure you have adequate insurance coverage on any debt or future bills approaching. You only need enough life insurance to cover such expenses like debt, burial, etc., but consider having enough to help your spouse retire.
You shouldn't have a mortgage at this point as your primary objective to continue stuffing your retirement account with funds. Make plans to travel, see the world, and learn how to withdraw funds tax-free, so when the time comes, you can enjoy life.