Recent world events have taught us that getting a handle on your finances is critical. Having emergency savings and developing a decent understanding of your available retirement investing options can make a world of difference as you age. Making smart money choices early in life can give you more options as you age.
1. Managing Money for Now
One of the reasons that financial literacy is so important for young folks is that it’s very easy to get yourself in a deep financial hole in your youth. Credit card offers will start showing up for young people, often even before they have a job. These early cards can make it possible to build a healthy credit score; it can also put you in a very bad place with regard to your credit rating and make it hard for the following:
- Buying a car
- Getting an apartment
- Finding affordable insurance
- Borrowing money for school
Learning to manage your money in high school and college can make your early working years much more profitable. You can start a 401(k) with your employer and maximize your contributions if you are not drowning in credit card debt from poor spending habits in college.
2. Saving for Emergencies
One of the best things about being a 21st-century frugal person is that you can combine high-tech with old-world skills. For example, learning to meal plan and budget is a great skill that an older frugal friend can teach you. In reciprocity, you can show them how to use one of the many budgeting apps that will help you build an emergency fund.
3. Saving for the Future
Once your 401(k) is all set, you may be in a good place to set up additional retirement savings. You can create a traditional Gold IRA to protect yourself against stock market fluctuations. You may want to create a Roth IRA, especially if you expect your income after retirement to be sizable. A traditional IRA will lower your taxable income now; withdrawals from a Roth IRA will not be taxed later.
4. Investing for Security
Consider investing for your future by looking at the necessities of life. We all need shelter, so buying a home that will serve you now and in the future is necessary. Take care to buy enough homes to suit your needs without worrying about impressing anyone else. Do the same with your vehicles; you need transportation, but you may want to wait for your dream car until your basic needs are covered.
5. Planning for a Legacy
Are you considering getting married and having a family? What will your legacy be at that time? Your children and grandchildren can be given a great start in life with proceeds from your investments, insurance payouts, and the tangible items that you have purchased, such as homes and vehicles.
Of course, your legacy can be a lot more than just investing money and paying off those tangible items. Teaching your child to manage their own money can be one of the greatest gifts you can give. Strong money management and frugality skills can help your child build the necessary funds for a healthy financial life.
6. Start and Keep Going
To keep financial goals simple, ladder your emergency fund. If your weekly grocery budget is $50, save that much. Your next smallest bill may be your utilities, so save up enough to cover those next. The next target may be your car payment, then rent. Once you can cover your rent for another month, go back and save for another week of groceries. Ultimately, you want enough in your emergency savings to cover all your expenses for at least a month. Each time you reach a new milestone, you have given yourself the time to figure out a way to bring in enough to live on.
One of the simplest tools a financially savvy person has is confidence in their choices. If your friend has a fabulous new house, your house may look shabby. However, your schedule may be lighter. Your job may be more enjoyable. Your free time may be more relaxing, and your payment is probably a lot lower. Figure out what you want, not what the world says you should have before you spend.