You might be bumbling along quite nicely, just about making ends meet and keeping a little bit back each month, but do you have a financial plan? Probably not.
Many young people are not aware that they should have a long term financial plan and while they are perfectly capable of getting by day to day, they don’t really have much of an idea how much they will need to retire, how long it will take to save for a property or even whether they can afford children.
While money isn’t everything in life, with careful management and a bit of thought, your money can make a real difference to your lifestyle and the opportunities that can come your way. Creating a financial plan is a good way to evaluate where you are now and what it will take you get you to where you want to be in the future. Though this is obviously not going to be a definitive answer and many things could change along the way, at least having one plan will reassure you of your position.
If you are new managing your finances, you are well advised to seek professional advice to help you with your accounts and planning. Have a look at BSWLLC.com for some hints and tips as well as more general information about your long term plans.
Property
Renting is a great way to get a property without any of the responsibility of looking after it but it does also come with some downsides. For one thing, all the money you are giving to your landlord isn’t getting you a property to call your own and it will eat into your ability to save up. Then again, if you need to live somewhere in order to do your dream job, renting is a good compromise to make.
There is a lot of contradictory advice about whether it is best to rent or buy but it really comes down to personal choice. If you want somewhere to live immediately, renting is a good choice as you can pick almost any location and you can move at a moment’s notice. On the other hand, you should try to put some money aside to get on the property ladder as it is one of the best investments you can own and will give you somewhere to settle down.
If you are looking for a first property, it is a good idea to search for a fixer-upper. This is a property that is a little worse for wear but can be quite easily done up and sold for a profit. There are plenty of property developers who make a career out of doing this and it is a great way to get on the property ladder and start saving for something better suited to you.
Whatever you decide, you need to factor in the financial implications of your plan.
Family
Many millennials are waiting a lot longer than their parents to start a family and one of the reasons that have been suggested is that, as a generation, millennials are less financially secure. The rise of the gig economy might mean that opportunity is everywhere, it is never going to be as secure as your average 9-5 salaried role. Plus, as millennials tend to live at home for so much longer, they don’t feel that they are ready to settle down just yet.
Money really isn’t everything when it comes to family planning but you are well advised to check that your health insurance will continue to cover all your needs and that you can afford to take maternity. You may also wish to start saving ahead of time to ensure that you will be able to afford all the stuff that comes with having a baby from the endless nappy supply to furniture and toys.
Starting a college fund as soon as you can will make a real difference in the future and if you can get started early, it will be much easier to save a little at a time over a longer period. Though there is a lot of pressure put on young parents to save, do balance your needs now with your future needs – you may have a better use for that money right now.
Retirement
One of the most neglected and yet most crucial stages of financial planning is making arrangements for your retirement. The world of work is being turned on its head at the moment and there are so many different predictions about the future that it is getting harder to work out what will happen. Some people are suggesting that we will all be out of work and essentially living off the state while others seem to worry that given the retirement age is slowly increasing, some people simply won’t retire at all.
Whatever you think might happen, the safest bet to make is saving anyway. Even with the ideal outcome that we will all be sipping mai tais on the beach while the robots do everything, having a big pot of savings is going to come in really handy. Starting as soon as possible is, once again, the key to success as you can save less per month over a longer period of time. The next thing to consider is whether you will need a 401(k) or an IRA and to start building your funds quickly.
However tempted you might be to stop saving for your retirement in favor of saving for other, more immediate things, you should always resist this temptation. There will always be things that might seem more important now, but if you consistently put off saving for your retirement, you will never build up the funds you certainly will need.
Saving<.h3>
Whatever your plans are, you should always keep back some of your income and put it into savings. Again, there is some disagreement about how much you should save each month but a good rule of thumb is to save a minimum of around 10%. This should set you in good stead, especially while you are still young and you can increase the amount you save as your income goes up too.
Saving is a good habit to get into, regardless of whether you have a particular idea in mind. Having some money in reserve is the best way to ensure that you will be able to handle any financial surprises later on including accidents, spontaneous decisions and job changes. Life can throw all kinds of curve balls and saving regularly will give you an emergency fund you can use as backup.
There is only one time when you might be better off using your money rather than saving it: paying off your debts. Instead of putting money into saving where it may not mature very quickly, it will be much more cost-effective to reduce your debt and avoid paying more in interest. The best trick of all is to then continue making the payments once the debt is paid off, but instead of going to the debt collector, it will go into your savings. Since you have become used to not having that money, you won’t feel too bad about losing it to savings each month instead.
Investing
Saving is a good habit to be in but it is not the most effective thing you can do with your money. Investing is a good way to put your money to work.
If you are new to investing then you should know straight up that it is a lot like gambling. You put your money into an investment scheme and then you hope that the money will mature and grow in value. Then when you sell the investment, you will have made a profit.
There are lots of investment opportunities you can take from stocks and shares to property or even things like gold and wine. Each opportunity comes with a different risk factor so it is important that you create a balanced portfolio to weigh the risks. This way if one investment fails, you will still have the rest of your investments safe.
The key to investing is to start small. You should always have some savings in the bank you don’t touch – some people call this an emergency fund – and only invest money you could lose without too much of a disaster. You might like to start by going to a financial advisor and asking for a few suggestions but there is also plenty of extra information online.
Planning your finances is about controlling risks and finding ways to save for the big life events we all go through. Though you might think that you are doing fine now – and to be honest, you probably are – there is a lot to be gained from planning for the future and setting some short term goals to help you get there. But, if you are going to take just one thing from this whole article it is this: save, save, save… and then invest.
