As life changes, your financial wants and needs will evolve with it. That’s why it’s important to have an understanding of financial strategy so you can plan ahead. There are specific tips and tricks you can use to make sure your financial foundation is strong for today, tomorrow, and the future.
Read below to learn about four components everyone should include in their financial management strategy.
First, you should know how to set and work towards goals. It’s not enough to say, “I want to retire by age 55” or “I’d like to have an emergency fund.” Financial experts from The Balance, advise setting clear, actionable short-term, mid-term, and long-term goals that you can work to achieve, such as, “I will save $20,000 in the next 12 months” or “I will pay off $10,000 of my student loans in the next six months.”
When you determine your goals, use a financial planning app like Mint to help you visualize your progress. You are more likely to achieve your goals when you can see them, so make sure you utilize a tool that works best for you and begin working towards them.
Some examples of goal setting include:
- Saving for emergencies, like car repairs, hospital bills, or sudden job loss
- Opening a retirement account
- Paying off debt, such as student loans or a mortgage
- Saving for a big, future event like a wedding or the birth of a child
- Building credit to improve your credit score
Financial goals look different for everyone and can change for a variety of reasons. It’s important to reevaluate as your circumstances change to ensure you’re on track to achieve your goals.
Create and Manage a Budget
Once you create your goals, it’s essential to know how to manage a budget. Tools like the 50/30/20 rule exist to help you categorize your income and expenses to ensure you’re not overextending your resources.
If you don’t have a budget, it’s time to create one. There are five simple steps to get started:
- Gather all your financial documents such as bank statements from checking, savings, retirement accounts, loans, credit cards, and pay stubs. Understanding your financial snapshot will help you plan your budget more appropriately.
- Calculate your monthly income, including salary, side jobs, child support, social security, and other sources of income.
- Review monthly expenses and divide them into fixed and variable categories.
- Fixed spending is mandatory spending, like mortgage and rent, utilities, groceries, etc.
- Variable spending is non-essential spending, like vacations, entertainment, gifts, etc.
- Add your expenses to a budget to better understand where you are under saving and overspending.
Slavic401k provides details about creating a monthly budget in this five-step guide.
If you already have a budget, you should revisit it and make sure your expenses align with your income. Are you saving enough money each month? Are you contributing to your retirement accounts? Apps like Mint and Spendee provide a snapshot of your accounts and expenses in one place so you can understand where you are and where you’re going. Read Slavic401k’s blog to learn more about the financial apps that will help you manage and maintain a budget.
Boost Retirement Savings
It’s important to include long-term financial goals as part of your budget, such as saving for retirement. Retirement planning comes in many different shapes and sizes, and financial advisors recommend using multiple accounts to plan for the future. Here are some examples:
- Employer-sponsored 401(k) plans are usually managed by a investment advisor or company that oversees the account and will educate you to help you make confident investment decisions. An added benefit is that many employers offer a 401(k) match as an incentive to participate in the plan. The means the employer is matching the same amount up to a predetermined percentage that the employee is contributing to their retirement plan, doubling efforts in the same amount of time. Learn about the differences between a Roth 401(k) and a Traditional 401(k).
- Individual Retirement Accounts (IRA) are a great option for supplemental retirement savings and can be added regardless of where you are in your retirement journey. An IRA is easy to manage and grow tax-free until you withdraw the funds in retirement. Learn more.
- Health Savings Accounts (HSA) are beneficial to have as you get older because it allows you to set aside money on a pre-tax basis to pay for qualified medical expenses, reducing or eliminating the need to tap into your retirement nest egg. Learn more about HSAs in our blog.
Start an Emergency Fund
Life happens, and when it does, it’s important to be prepared. Whether you lose a job, need to repair your damaged property, like a house or vehicle, or spend a few days in the hospital, you’ll want to ensure you have savings set aside that you can pull from without draining your checking account or pulling from retirement savings.
Part of managing an emergency fund is including contributions in your monthly budget. Many financial experts recommend having six months of expenses tucked away, so make sure contributions are accounted for so you are prepared if something happens. Learn about starting, managing, and using an emergency fund.
Managing your finances doesn’t have to be stressful, and with the right strategy, you can be successful today, tomorrow, and in the future. Use your resources, ask questions, and visit Slavic Wealth Management to learn about making, saving, and spending money.