New Year’s resolution: take charge of my financial life. Check. Now what?
If a financial health-makeover is on your 2014 to-do list but you’re not quite sure how to begin, read on.
- Start where you are.
A common misconception is that you aren’t yet in a position to start building the financial future of your dreams. In fact, it’s not having a particular amount in the bank years from now that will enable you to live your richest life. It’s taking smart steps to build a strong foundation today (see next two points!).
- Live below your means.
High income alone does not make you wealthy. Spending, saving, and investing wisely, on the other hand, can.
- Don’t just save: invest.
Savings accounts today are the equivalent of modern-day mattress stuffing. If your money simply sits in savings, it can’t grow and work for you. Not only that, but with low interest rates that don’t keep pace with inflation, you’ll actually lose money over time. You’ve worked hard to earn and save; that money should work for you.
- Map it out.
Decide on concrete steps to tackle any short-term problems (like making a realistic budget or paying down high-interest debt) and create a big-picture road map for longer-term objectives. Ask yourself: what are my financial goals? What are my values about wealth? Where do I see myself in five years? Ten years? What will it take to get there?
- Think proactively.
First, assess your overall financial needs in terms of spending, saving, and investing. Without a solid idea of where you stand financially and a plan for where your money goes day-to-day, it’s all too easy to end up spending and saving reactively. Then, make decisions about how you’ll spend ahead of time, rather than in the moment, using the budget you developed. Similarly, instead of saving “what’s left over” at the end of the month, use an auto-transfer to send a given amount to savings every month. When that money is not in your regular account, you’re not tempted to spend it – just set it and forget it.