From early debt to debt freedom, being independent on your means bring finance nightmares. As soon as you celebrate your 30th birthday, there’s new bucket list for you to conquer and the resources are limited and stagnant. Being financially secure isn’t a cake walk but it isn’t something you can’t achieve. After all, your 30 is to focus on expensive buys like car, your own house, retirement saving, or starting a family.
Hence, it is mandatory to move high financially without sacrificing your short-term goals. And as it is always said – well begun is half done, so it’s your time to start planning more and move accordingly. Before you enter the golden age of life i.e. 30, here are seven important finance questions you must ask yourself.
How you need to go about? What should be your early bird plan? Can 20-something think about 30-money-saving plan? To solve your queries, read the below article and answer yourself.
Are you a planner or a saver?
Saving money monthly or weekly will fetch you few dollars in the end but if you plan your money wisely you can save more than that. Financial planning works in three steps-
- Look at your earnings-your source of income
- Calculate how much you need for your desired lifestyle
- Create a goal and investment plan that help you reach those magic numbers
Unfortunately, many people still rely on present and prefer to put plan off until future arrives. It’s important to set goals and make plan to achieve them. For example-if you want to pay off your home loan set a timeframe of two years or three years, you can better achieve goal instead of just saving for it with no time deadline. Become a planner than a saver. What you must think before making financial plan?
Financial plan do involve saving money but not by cutting your lifestyle expenses. Make an ideal lifestyle that doesn’t hamper your budget or your craving. Shopping once a month, using credit card only in emergency are some of the rules you must lay down. In the end, “it’s not who dies with most money wins, it’s who made most out of life wins.” You can also get finance help from Mint, DoughHound, Geezeo, and Pennyminder- the online finance management tools.
What are your financial goals?
Another important task is to identify and prioritize your goals. For example, your wedding can wait for a year but your loan has to waive off as early as possible. You can’t always achieve all your financial goals, but you can still try for it. Your goal can be of short term and long term such as a ‘great beach holiday this summer’ is a definitely a short-term objective while long-term goal is ‘securing your retirement.’
Goals continually crash each other, for example, paying big sum of money monthly for loan will wipe out your hope for retirement. Despite what life phase you are in, you are likely to have some personal finance objectives. Setting concrete and realistic goals and tracking your progress is the key to achieve financial success. Follow this step:-
#1-Determine your short-term, mid-term and long-term goals
#2- Determine how much money you need for each goal
#3- After estimating time and money, look in to capital gains you will receive from your saving accounts and how will channelize the income
#4- Finally, draw a plan and find which goal need to be prioritize and focus more to achieve short-term goals and save for long-term ones.
After this plan works out for a month, review your progress and find your loopholes in the current plan. If you’re still lacking somewhere, recheck your monthly budget and find where you can cut down your expenses.
Are you planning for retirement?
You are just 30 and retirement is still a faraway thing, isn’t it? Well, if you have a stable income source, it’s better to plan your retirement sooner as possible. Apart from securing your present and short-term goals, you must be financially prepared for the coming future too.
PAY YOURSELF FIRST-Implement this deal where you are contributing small shack of money daily and after a month invest the saving for a retirement plan. Increase your saving ration when your income increases or short-term goals are achieved.
If you save $1,000 every month from your 30th birthday and you get 6% return then you could save approx. $1.38M by the age of 65. But if you start late, you have to double your saving each month. Try to save 15% of your paycheck for retirement but if you fail to do so, you need to prioritize source where your income goes. You’ll definitely hate yourself in your 40s, if you don’t take the saving work now.
Dave Ramsey, the finance expert, explains this better:-
Saving only $100 per month from age 25 to age 65 at 12% growth = $1,176,000. Everyone should retire a millionaire!
— Dave Ramsey (@DaveRamsey) February 12, 2013
How much in debt are you?
While saving for retirement is great planning but paying off your credit card comes before any short-term goals or future finance management. You can never save something for future, if you can’t clear out your past expenses. Before you plan for retirement, make sure you allot 20% of your income to pay down your credit card bills-the higher interest rate card come first while lower interest rate should be focused later.
If you carry forward your credit card dues ahead of 50-day credit cycle, you’ll have to pay late charges, finance charges, or extra interest on the amount pending. You need to get rid of this habit because outstanding credit interest charges takes more than the actual balance to be paid. The interest applied on the remaining to-be-paid-balance is at a monthly rate of 3-3-25%.
Have you ever taken any financial risk?
Start taking calculated risks at the young age. You might fail in the process but don’t forget failure is a step toward success; your mistake is your wisdom.
What are calculated risks? “A chance taken after careful estimation of the probable outcome, as in taking their dispute to arbitration was definitely a calculated risk.” It includes moving to new city, taking additional training, or taking a new job with less pay but higher learning potential. Starting your own business, investing in high risk stocks or working for small firms is easier to take when you’re young.
As you grow older, you have more responsibilities like paying rent or saving for kids. You play safe and capitalize less on riskier opportunities. Taking financially risk when you can afford both profit and loss is the best time to enjoy the plunge.
Do you know where does your money go?
In the beginning of your career, you see lot of money pouring in. Rather than spending more on luxurious lifestyle, put the extra money aside for future debt or to your savings. As you advance further in your career, your pay should increase. If the cost of your lifestyle delays your income growth, by saving in the beginning, you will have enough cash flow to pay for debt or for other investment related financial goals.
Many people get into trouble when their standard of living exceeds beyond their affordability. Hence, it is advisable to keep the cost of your lifestyle lower than what you earn, later you don’t have to cut down to save money but you will naturally have enough cash coming in because you earn more than you spend. Your good life and high standard of living should be a reward of consistent hard work, fortune and wise planning, and not something that you are free to.
Do you have a diversified investment portfolio?
After paying your debt and taken enough insurance, it’s time for creating an effective investment plan. The sooner you invest the early returns you are likely to earn in the long term. However, it is always said, when you are young you can take many risks because you have less responsibilities and more likely to save good percentage of your income.
Many people restrict them to bank saving scheme but thirty is the time to take more risks, it’s time to get into stocks, mutual funds or equity. Also you can invest on asset programs depending on the risk involved and return gain. You need to play safe; over-investment will widen your risk and deplete your chance to earn more due to inflation.
Not all investment spectrums meet your personal financial goals. Some provide stable income but with low risk while others may have significant returns but a long-term investment is required. There is wide range of investment option available for example-mutual funds, traditional IRAs, Roth IRAs, bond funds, stock and deposit.
Apart from answering the above question, ask yourself about realistic approach to improve your income level. Can you earn more? Is there any scope for you in the same career field? Can you find better job with better pay? Can you manage time for part-time job? Are you ready to start a business venture?
May be answering this question will get you more dollars in your account. Ask yourself and see where they lead you.