1. Plan Ahead and Set Financial Goals You Want to Achieve
Have you ever wondered where you will be in five years? Will your income and savings have changed? Will you be retired or working at another job? While financial success may fall into the laps of some, most of us need to actively plan where we want to be in the future, as financial success is typically the result of proactive planning and action. A good way to start planning ahead is to break your big goals into smaller, digestible pieces. This can help you stay on track and work towards your larger long-term goals.
Let’s say you’re 30 years away from retirement and you’ve estimated that you’ll need around $4 million to retire. Rather than focus on saving $4 million by the year 2047, try establishing several short-term goals, such as reaching $500,000 in retirement assets by the year 2020. Once you reach that goal, you can reassess where you stand and create a new savings goal for 2025, and so on.
The same principle applies to just about any short or long-term goal, from saving for college to buying a house. In order to know what strategy to employ (such as deciding between saving first for retirement or college, you’ll need to know what you ultimately want to achieve. This is why setting goals is so important.
2. Set a Budget (and Stick To It)
Regardless of your income, there’s a reason why so many financial professionals recommend following a budget. A budget helps you establish parameters for operating your household, understand if your goals are achievable in your desired timeframe, and may help reduce stress in the event of an unexpected incident, such as the loss of a job or an injury.
When creating your budget, you will first need to determine what your necessities are. Ask yourself, “If I were to lose my job tomorrow, what expenses must I maintain in order to run my household?” This may help you realize that you may not need the premium cable package, but it’s necessary to keep the A/C and heater running.
After determining your necessities, you can build into your budget the savings goals you previously determined you wanted to achieve. Compare the two and any additional funds left over can be used for expendable expenses.
3. Save Early and Often
One of the biggest benefits of saving early and regularly is the power of compound interest. If given the choice, most people would choose to spend less money on achieving their goals so that they have more money to pursue their passions in life. Compound interest helps the money you put away grow faster due to interest building upon itself. You can make your money work smarter rather than harder to pursue your goals.
If you procrastinate and delay saving, you not only lose out on your money working for you, but you also make it harder on yourself. You’ll also have less time on your side, so you will have to save more money and may have to increase your tolerance for risk in order to achieve your goals.
4. Seek the Guidance of a Professional
Working with the right professional may help make your financial journey less stressful, save you time, and instill confidence that you are on the right track towards achieving your goals.
Think about professional athletes. They have coaches and trainers that keep them focused on the critical areas for success. These coaches have the experience and expertise in training with others to help their athletes work more efficiently and more effectively. Or, if you’ve ever worked with a personal trainer at the gym, you may know firsthand that you feel much more motivated to keep progressing because you have someone to check in with.
A financial advisor can serve as a financial accountability partner, providing ongoing guidance, support, and advice. It’s easy to slack on your budget or slip up on following your goals when you don’t have someone holding you accountable. Find a financial advisor you trust to help you stay on track and provide advice when you need it.