Money isn’t everything, but it’s still quite important. With better financial grounding, you’ll be able to live with less stress, all the things you need, and a lot of the things you want, too. For some people, it’s intimidating to think about their financial future – it seems like a distant reality. If you’re currently living paycheck to paycheck or if you don’t have an established career, a comfortable financial future may seem like an impossibility.
But the truth is, even if you’re in a difficult place now, you can secure your financial future in just a few important steps.
Making Your Future the Priority
Before you start reviewing and improving your personal finances, you need to adopt the right mentality: your future needs to be the priority. Many of the steps necessary to build a better financial future require you to make sacrifices today. You’ll need to do challenging things, change your current life, and rearrange your priorities – but if you’re comfortable working for the future, it will all be much easier.
Securing Your Financial Future
Improve your financial future with these 10 important steps:
1. Invest in yourself. First, make sure you’re investing in yourself. You need to invest time and money into making yourself more educated, better trained, and more capable of making money in the future. For many people, that means some combination of going to college, getting a graduate degree, undergoing formal training, and getting certifications. The more educated and better trained you are, the better poised you’ll be to earn a higher salary in the future.
2. Set a timeline. You’re preparing for the future, but what exactly is the “future,” and what do you want when you get there? At minimum, you should have a target retirement date in mind; for example, you might want to retire by age 60. At that point, you can work backward to set up milestones and goals along the way.
3. Create a budget. A budget is your most important financial tool. It’s going to lay the groundwork for what you can afford and how you’re going to spend money. It’s also going to raise your awareness of how you’re spending money; after a few months of consistent budgeting, you’ll likely realize that you’re spending far more money than you thought on things like takeout, subscriptions, or other expenses.
4. Cut unnecessary expenses. After establishing a budget, it will be time to cut unnecessary expenses, either by eliminating them entirely or reducing them. You can start by downsizing your home (if you have more space than you need), then work on trimming your grocery, utility, and entertainment expenses.
5. Pay down your debts. With lower monthly expenses, you should be able to save at least a few hundred dollars every month – if not more. If you have trouble doing this, proceed to the next step. With the extra money you save from your ongoing efforts toward frugality, start paying down your debts – and start with the highest-interest debt. If left unchecked, high-interest debt can wreak havoc on your finances. Once compound interest is no longer a factor, you can move on to other goals.
6. Increase your income. Next, work on increasing your income. If you’ve invested in yourself and you have a steady career, you can work on getting promotions or earning raises in your current line of work. Otherwise, you can change careers or pick up side gigs to make extra money.
7. Open a retirement account. If you’re working toward a better long-term future, make sure you take advantage of a retirement account. Tax-advantaged accounts, like IRAs and 401(k)s, incentivize you to save for the future and allow you to either invest more or grow your account tax-free.
8. Invest. Once your debts are paid down, put your extra money each month toward investments. For example, you can invest in real estate and generate a monthly profit from your inbound rental income – and it’s a completely passive stream of income if you hire a property management company to take care of it for you.
9. Diversify and rebalance. Most major types of investments stand a good chance of making money in the long run. But if you want to protect your financial future, you’ll want to hedge your risk by diversifying and periodically rebalancing your portfolio. Keep a healthy mix of different asset types in your accounts.
10. Keep learning. There’s a lot to learn about finance. Keep an open mind and continue learning as you approach your long-term goals.
These steps aren’t all easy. Some of them can be knocked out in an afternoon. Others may take years of effort. But if you can get through them and keep optimizing your finances for the future, you can easily set yourself up for a wealthy retirement.