It’s virtually impossible to escape headlines about financial issues at the moment. The cost of living is rising, and money worries are among the most common causes of stress and anxiety. As the world continues to recover from the pandemic, more and more of us are thinking about money and what will happen in the future. Is it ever too early to start saving for later life, or should you already be putting money aside? If you’re unsure, here are some essential questions to answer.
Are you in debt?
The first step to take if you’re thinking about saving for your retirement or putting money into a savings fund is to clear debts that are costing you as a priority. There is a big difference between debts, such as mortgages and loans that you are paying off on time every month and loans and credit cards that you’re using regularly that cost you in interest. If you are paying interest every month and your balances are going up, try to manage your debts, reduce your balances and lower interest fees before you think about the future. There are two main options when paying off debts. You can start with the smallest and work your way up or tackle the debt that is costing you the most money first. If you’ve lost control, and you feel like your debts are spiraling, seek advice as soon as possible. There are ways to manage debts and avoid further stress.
Have you got disposable income?
Saving money is increasingly difficult because the cost of living is going up faster than wages. If you draw up regular monthly budgets and you have disposable income, it’s an excellent idea to try to save as much as you can. You could set up an emergency fund, save for events or milestones, such as weddings or buying a house, or start making plans for your retirement. If you are employed, you may already be contributing to a 401k plan, but you might want to maximize your savings by exploring options like annuities. Before you buy any financial product or open accounts, it’s essential to research, seek expert advice and ensure that you’re aware of how different products work and the pros and cons. It’s also wise to find out more about tax liabilities. Read up on annuity taxation and speak to advisors before you make a decision. You may find that some financial products are better suited to you than others or that you can use certain funds before others to save on tax.
Do you have short-term financial goals?
Many people don’t think about saving for later life because they have targets and goals they want to reach in the short term. If you’re saving to buy a house, for example, or you’re desperate to travel the world or swap your car, putting money into a retirement plan might not be your top priority. It’s always beneficial to try to balance being cautious with your money and thinking about the future with seizing opportunities to live life and enjoy the fruits of your labor. If you’re saving every spare dollar and sacrificing treating yourself, this could impact your enjoyment of life. There’s also no guarantee that you’ll be able to spend the money you have saved during your working life. Nobody can predict the future, and you don’t want to regret not taking any vacations or allowing yourself to have fun with friends and family. If you have savings goals, try to ensure there is a balance between short-term and long-term milestones.
Are you using credit?
More than 80% of American adults have at least one credit card. Using a credit card can be beneficial for your credit score and it’s also convenient if you’re paying large sums up front and you want to spread the cost. If you use credit and you pay off the balances regularly and keep up to date with repayments, there’s no issue. The trouble is that it’s easy to become reliant on credit and to start living beyond your means. If you are using credit as a means to stay afloat between paychecks, or you’re spending more freely because you have a credit card or a loan, it’s beneficial to try and reduce your expenses and get your debts under control before you save money or start thinking about creating a nest-egg.
Saving for the future is often a sensible option, but it’s not always best to focus on planning ahead if your financial situation isn’t stable now. Before you think about your retirement and paying into schemes and plans for later life, ask yourself if you’re in a position to think about the future. If your debts are increasing, you’re paying interest on credit cards and loans, you have become increasingly reliant on credit, or you have short-term savings goals, use your money wisely. Clear debts, reduce your credit burden and work towards targets you have for the next year, 5 years or 10 years.