Updated: Dec 22, 2020
Kathleen Owens | Fiduciary | Financial Adviser | Certified Financial Planner candidate
Rainy Day Fund
Also known as an emergency fund, having a savings account with funds that equal to 6-12 months of your living expenses is the first step to plan for an emergency. Save twelve months of your living expenses, if possible: it's better to have a bigger "cushion" in case of an emergency. The money should be in a type of account that will enable you to withdrawal the money quickly if needed, and the money should be in a zero-risk account such as a certificate of deposit account (CD), savings account, or U.S. Treasuries fund account. Having a whole life insurance policy is another way to have access to funds in case of an emergency. You can borrow from a whole life insurance policy, if you've met the terms set by the issuing insurance company.
Review your 401(k) Plan
How did you determine what percentage of your paycheck you were going to deposit into your 401(k) plan? Has your situation changed since you first set-up your plan? If the percentage is not at least 15%, reevaluating the amount you are setting aside for retirement is essential.
With the assistance of an investment adviser, you may find that you are not saving enough. It is better to save too much than too little. Don’t wait. Find out now if you are on the right track. What is the investment lineup in your plan? Does your employer match a percentage of your contribution?
An advisor can run calculations to determine the best strategy for you. You may be better off investing just enough to get the employer match, then setting up your own IRA to get a better choice of investments and lower your costs. Many employer-sponsored 401(k) plans have high administrative fee.
Do you even have a 401(k) plan at work? If not, you should open an IRA (Individual Retirement Account) immediately. An advisor can help you do this and set-up the account so that you can contribute to it automatically. The amount that you contribute each year will be deducted from your taxable income. An individual IRA account does create a bit more recordkeeping on your part, but it is well worth it.
Take a Hard Look at Your Spending
How much are those lattes costing you per-year? Do you wonder where your money went at the end of each month? If you don’t know, a hard-look at your spending is in order. Though, this can be a sobering process and a real eye-opener, taking control of your spending can be empowering.
Think about what things truly bring you happiness. Do you ask yourself before each purchase, “is this something that I really need?” Is your spending a habit, or do you carefully consider each purchase?
One trait of financially successful people is that they are very aware of what their expenses are each month.
These is a growing movement of a lifestyle called Minimalism. This lifestyle shuns consumption for the sake of consumption, and promotes a minimal, clutter-free lifestyle.
We are constantly bombarded with manipulative advertising. Companies make it very easy to have instant gratification. Products can now be delivered within hours to our home.
Create the life you want, not the life advertisers are pressuring you to have.
Peer pressure brings on overspending in all age groups, but a recent survey by Credit Karma showed that nearly 40% of millennials overspent to keep up with friends. FOMO: Fear of missing out and fear of losing friends is the reason why we “allow” our friends to influence our spending. Be honest with your friends about your budget and your long-term financial goals. It’s not worth it to go into debt to keep friends. If your friends don’t understand, you may need to find new friends that have the same views on saving money.