Improving one’s financial situation and habits can seem like an immense undertaking; few schools teach even the basics of financial planning, leaving many new wage earners uncertain of how to begin taking care of their future. Here are three best practices which will have an immediate impact and help you progress towards sound and stable goals.
Address the big stuff
When you’re working to improve your personal financial situation, there are some major expenses which will invariably come up; it’s better to address these elephants in the room definitively and as soon as possible. Housing is usually the largest line item on any budget; are you prepared to move to a smaller apartment, or relocate to a less expensive area outside the capital and face a longer daily commute? Similarly, if you dream of buying a Volkswagen, taking the time and effort to find the best car finance option will leave you with more flexibility in the long term. Most people don’t have to consider more than a handful of such large-scale expenses throughout their lives; how you allocate resources to these items, and find ways to compromise or reduce the outlay, can provide you with the building blocks for a solid financial plan.
Work on sound habits
Small expenses don’t have a big impact on your overall financial health – except when they recur over time. If you only spend a lot once or twice a year – for a special occasion, or a loved one’s birthday, perhaps – then the expense will even out over a twelve-month period. But daily or weekly expenses, such as groceries, add up over years; this is where developing the habit of frugality will really pay off. Buying a $5 latte each day to jump-start your mornings can be a habit costing you upwards of $1,000 in a year. When you go over your monthly household budget, look at these small, recurring expenses. Research good financial habits and determine how they can help you address spending or line up with your personal deficits; the good news is that anyone can improve in their habits. Be deliberate in your approach; don’t just have a checklist of things to do, but develop cues and reinforce your responses to encourage smart spending each day.
Map out the future
You may be familiar with the typical picture of a millennial who’s carefree about their financial situation; living from paycheck to paycheck, spending on travel and experiences without thinking about a long-term plan. The truth is that’s a generational stereotype; anyone can be guilty of lacking a clear financial vision for their future. How soon would you like to retire? Every year you work brings in more income and reduces the years you’ll have to rely on your savings. Do you plan to travel around the world in your retirement? Factor in the cost of the trip and deduct it from your expected retirement fund. Project your earnings in the years to come; if the numbers don’t add up, then you need to make those adjustments now instead of assuming that things will just work out someday. Only with a clear picture of what you’ll be earning and spending in the future can you actually take steps to secure a comfortable retirement.
Doing further research will uncover dozens of other ways to improve your financial situations. By starting with these areas of high impact, you can make concrete progress and build upon that with more good habits.