All of us want to spend our middle-aged and elderly years in relative comfort after grueling work in younger years. Comfort means many things. It can mean living in a home you like. For the most part however, comfortable living hinges largely on financial security.
If you age with debt, the debt would also age with you. If you spend freely without regards to your future financials, you are most likely to retire without enough money to cover day-to-day expenses. Securing the finances of your sunset years starts today. Here are several important money management tips that will help you be financially safe in the future:
Save, Save, Save
It may sound like a cliché, but the first step towards financial security starts with saving. Opening a savings account may not be on the list of priorities for young people in their twenties or thirties. The newly employed are most likely to worry about paying student debt or brand new mortgages. While there will be many expenses, it’s crucial that you start saving for emergencies, retirement, and for hefty expenses. It’s recommended to save at least a third of your income each month. It may not be possible for everyone, but you do need to put aside at least some amount as savings for future uses.
Invest with a Plan
Start investing young to allow your funds to compound to significant levels by the time you retire. If you want to invest in penny stocks, then start early. If you end up losing on a trade, you are still in your prime working years and will be able to earn it back. Investing is a great way to earn passive secondary income that you can save or put in a retirement fund. However, do start to invest with a plan. Don’t bet all your fortune on the day trading market. Strategize and diversify to optimize returns and minimize the risk.
Balance Risky Investments with “Low Risk” Assets
All investments are risky in one way or another, but some investments are riskier than most. Stock trading is famously vulnerable to volatility. That doesn’t mean you shouldn’t invest in stocks. Rather, you should mitigate these high risk investments with low risk ones, like bonds, mutual funds, and certificates of deposit. Diversify your portfolio with these low-yield but low-risk forms of investments to reduce your exposure to the worst forms of market volatility.
Plan for Retirement Beyond a 401(k)
While you match employer’s contributions to your 401(k), that may not be sufficient for saving towards retirement. It’s best to open an individual retirement arrangement, or an IRA, early on. IRAs are managed by trustees and allow your investments to grow with tax issues solved. These tools are great for near hands-free investments towards retirement. When your IRA reaches a certain value, you can get more control by converting it to a self-directed format.
Above all, learn to control impulse spending. Don’t waste your monthly income on unnecessary expenses that you can certainly live without. In your younger years, prioritize saving your money. When you have comfortably retired, you can spend as much as you want.