Prosperity. We all want it; the question is how we get there. Studies show that getting to a place of financial well-being is on the minds of most folks, and not in a good way. Sixty-five percent of Americans say they have stress about their current and future money flow.
But the idea of prosperity doesn’t have to keep you awake at night. With these five simple money management tools, you can put yourself on the road to financial freedom, and rest easy.
1. Prioritize saving for retirement.
This is the most important item on our list. It is an absolute must that you set aside some money each month for retirement.
Don’t rely on Social Security alone to get you through. Roughly half of American families have nothing saved for retirement. The good news is that it’s never too late to start. Do it now, while you’re working. During your retirement years, you’ll need the savings and investments to supplement what you earn from a part-time job or rental income. My recommendation is that you shoot for a $500,000 retirement nest egg.
If you’re not already saving, you can make this transition easily. Before spending on anything other than essential bills, put a percentage of your paycheck into your 401(k), IRA, or other retirement accounts.
Ideally, you should be saving 20% of your income for retirement.
If you can’t afford that amount right away, contribute as much as your budget allows, and then increase that amount over time. Strategies like diverting a raise at work to your retirement funds can make a big difference – and help you achieve your savings goal.
2. Work closely with your spouse.
Disagreements about money can lead to relationship stress, and make it more difficult to accomplish your family’s financial goals. If you’re thrifty and your spouse is a spendthrift (or vice versa), you need to get on the same page.
Have regular conversations about money and finances. Talk about how to use your money in ways big and small. If you can both agree on big goals, like savings and what you want your financial future to look like, that’s a great start. Once you have these benchmarks identified, then you can start working towards them together, and creating a workable budget is that much easier.
3. Curb the credit cards and don’t spend more than you earn.
According to a CareerBuilder survey, over 75% of full-time workers are living paycheck to paycheck, and over 70% of American workers are in debt. Here is an eternal truth: it’s impossible to save if you’re spending your entire monthly income (or more).
For you to save, there must be something left at the end of the month when all the bills are paid. If you are overspending, it’s time to up your income or bring down your spending. Increasing your income could mean asking for a raise, doing overtime, or taking on an extra part-time job. Spending less means you need to begin tracking your spending and set a realistic budget that you stick to.
If, like many people, you don’t have the discipline, willpower, or simply the inclination to create a budget, automate the savings process. How? By having money directly withdrawn from your paycheck before it ever touches your hands. And leave the credit cards at home. Both of the strategies illustrate the truism that you can’t spend what you don’t have.
4. Sleep on big purchases.
We all know about buyer’s remorse. And at some point or another, we’ve all felt it after making a big impulse buy. Why? Because spending big on something that doesn’t really bring happiness to our lives is a waste.
To curb impulse shopping and the resulting guilt, put a 24-hour waiting period on large purchases in place. This will give you breathing time to consider whether you really need that new pair of shoes or that bigger television, or whether your money is better used elsewhere (like in savings). What’s more, if you decide to buy, the waiting period may lead you to shop for a better price on the same item.
What constitutes “big” will depend on your budget and income, but for most folks, $100 is a good limit.
5. Bulk up (or start) your emergency fund.
Life happens. You could find out you have to pay for an unexpected car repair or a broken hot water heater at home. No matter the case, if you have a healthy emergency fund, you’ll be prepared.
If you don’t yet have one, you’re not alone. According to a recent survey, over half of Americans don’t have more than $500 in the bank to handle an emergency. And about 60% of all folks surveyed said they’d experienced a financial shock of, on average, $2000 during the past year. To recover their financial balance, it took these folks more than six months.
Saving for a rainy day isn’t just for fun money, it’s for necessary, unforeseen expenses too. So, start your emergency fund as soon as you can. Without one, you may be forced to rack up debt, which thwarts your efforts towards prosperity.
A good goal to set is to have enough in the bank to cover three to six months of living expenses. Seem out of reach? Start small. Shoot for $1000 first and then go from there. Before you know it, when life happens, you’ll be paying with a debit card instead of a credit card.