Reality check — you might not make your first million by the time you turn 40. Over a lifetime, if you were to add up all your annual salaries you could hit that million mark, but that doesn’t mean you’ll have a million in the bank. That’s okay because not many people can achieve that lofty goal.
Of course, there is nothing wrong with trying. To get you close, you’ll need to bring your financial house in order. It might be time to review your entire approach to money and how you use it and, more importantly, how you lose it. These are the things you need to remember when it comes to personal finance.
You Need to Live Within Your Means and Really Mean It
As much as you’d like to go out and buy a Ferrari or fancy yacht, you’re not going to make that purchase. Why? Because you simply can’t afford those luxury items. That’s just practical sense. Where people get tripped up is making smaller purchases that end up being too big for their budget. A pair of $200 sneakers or an $800 purse are prime examples. Yes, you’ve worked hard and deserve a treat but not at the expense of paying your bills.
Living within your means requires sacrifice and impulse control. Even the new iPhone 7 is going to cost you when you’re paying it off over time. Nothing is really free.
You Need to Understand How Credit Cards Work
Credit cards are the ultimate in spending convenience when you don’t have cash on hand or you’re in between paychecks. Make a swipe and you get what you need. The problem is with every swipe you’re also paying interest. Factor in the occasional late fees, and that $50 item could end up costing you twice as much over time. That is fifty extra dollars you’ve just given over to the credit card company. Is that where you want your money to go?
This is not to say you shouldn’t have credit cards. They’re a great way of building up your credit history, which will help when you want to take out a loan. The goal is to keep only cards with low interest rates. You should also strive to pay beyond the minimum amount each month in order to bring down your debt. Another good approach is to use credit cards only in an emergency. Don’t spend what you don’t have, as mentioned above.
You Need to Always Be Saving
Remember your first piggy bank? Months would go by with you dropping coins in the slot. When it came time to cash out, you could have amassed quite a fortune, or at least it was a fortune for a six-year-old.
That same philosophy should apply to your grown-up savings plan. You should always be saving. If you have direct deposit with your paycheck, then consider setting up direct withdrawal of a certain amount into a savings account. You can save without any effort.
You Need to Put Your Money to Work
Saving for retirement can start at any age. The sooner, the better. Just keep in mind putting money in a savings account is good, but it’s not going to help you achieve your long-term financial security goals. It will help if you can put that money to work. That means investing in products that can provide a return. This doesn’t mean you need to head off to business school. There are plenty of reputable investment options available that allow you to put money in a portfolio with varying degrees of risk.
Start at your bank. They probably have a program that can put your money to work. Keep in mind that the money you put into an investment portfolio needs to stay there so it can grow. Don’t invest money you need next week.
Getting on firm financial footing isn’t complicated. You know what bills you need to pay each month. You know how much money you have coming in. The rest comes down to being smart with purchases and finding ways to save. Cutting back on a daily Starbucks run or bringing your lunch to work is a good place to start. Keep working these tips and watch how your money can grow.