If you’re just starting out, it’s easy to get overwhelmed with your financial obligations. It’s very similar to going on a trip without having a clear route.
You might take the wrong detours or get lost along the way and, before you know it, you’re already running out of time. So, the sooner you start, the better off you’ll be.
Take advantage of the time you have. If you wait too long, it will be harder to save for retirement and live comfortably. Even if you don’t feel confident, remember this: it’s better to get started somewhere than to not do anything at all because you are afraid you might make some wrong choices along the way. Here are some tips to help you get started.
Follow the golden rule of financial planning.
Pay yourself first. Many financial planners consider this rule as one of the fundamental pillars of financial planning. The idea of paying yourself is very straightforward. As soon as you receive your paycheck, put it into your savings account.
Before you even start thinking about your monthly bills, put aside a portion of your income aside. Think of it as paying a bill and it doesn’t matter how big or small you should set aside. If you are consistent in saving, you will accumulate a considerable amount of money over time.
There are many benefits of paying yourself. Aside from seeing your balance grow, you will be equipped in case an unforeseen expense arises. Also, you’ll have a budget for making big-ticket purchases, such as putting a down payment on a good car finance deal.
How much should you save?
As a guide, save at least ten percent of your income. This is a good number, especially if you are just starting out in your career. As you progress, you can consider increasing your savings to 15 percent as your salary grows to get a nice head start and create a financial buffer.
Remember, as you grow older, your expenses will begin to increase. You may get married, start a family, and need to buy a house. So, make sure you are saving enough as you grow older.
Create an emergency fund.
Having an emergency fund is essential. You never know what can happen in the future. You could lose your job and be unemployed for a few weeks or months. You might encounter a setback that can affect your earning capacity, such as a serious illness or temporary disability.
While there’s no set number for how much you need to set aside for an emergency fund, it’s a good idea to have at least three to six months’ worth of your monthly income saved. This should be enough to help cover whatever emergency may come up until you can recover.
Categorise your financial goals.
Essentially, you can create four basic categories:
1. Paying off debts
2. Emergency funds
3. Short-term savings
4. Long-term savings
Setting aside a budget for emergencies and paying off any outstanding loans you might have is a good place to start. Putting aside money for your short-term goals is next. These could include saving for a house, a car, travelling, etc. Finally, your long-term savings should be for retirement.
While there is no one-size-fits-all formula for financial planning, it all boils down to a few simple steps and some common sense – earn and save more; spend less than what you make. Even if you’re not a financial expert, you can use these tips to manage your finances, so you can have a more stable and prosperous life.