Everyone learns the same thing about money at a very early age: It is what you give to the clerk behind the store counter so they won’t yell at you for taking candy out of the store.
Unfortunately, this is not the only lesson in money you need to get ahead in life. The sooner you learn a few crucial things about finance, the better prepared you will be to purchase a home, retire early, and spend your retirement doing nice things!
Stay Within Your Budget
No matter the amount of money you earn, it is crucial to keep track of your living expenses and endeavor to spend less than them. Budgeting will help you develop saving habits which will serve you well throughout your life. It will also help you avoid needless consumer debt, which can accumulate surprisingly quickly when you are not cautious. The average household consumer debt in 2021 is $96,371. If that seems like a lot to you, that’s because it is!
Several budgeting methods are practical, although many find the 50/30/20 technique most practicable. This budgeting guideline holds that you should spend half of your net income on necessities, invest 30% into repaying your debts, and save the remainder. Zero-based budgeting, where you determine the exact use for every dollar you earn before you spend it, is also useful. But whichever budgeting model you choose, you’ll benefit from forging the discipline you’ll need to avoid accruing debt as the result of squandering money.
Keep an Emergency Fund
Two out of five Americans say they would fall into poverty if they don’t receive their next paycheck. It is no wonder why so many people could be financially ruined by an unexpected expense. When a single visit to the emergency room without insurance costs an average of $2,200, it’s easy to appreciate the necessity of a rainy day fund.
It is recommended that you set aside at least $1,000 for an emergency. But as you establish yourself financially, try to save three to six months’ worth of your living expenses in a high-yield savings account.
Never Pass an Opportunity to Save
You’ve no doubt encountered articles advising Millennials to stop purchasing designer coffee drinks and food delivery services if they want to succeed financially. The tone of these articles is often rather grating – accusatory, even – but don’t let that distract you from their sound wisdom.
If you can do without an unnecessary extravagance, you would be well advised to. If you avoid ordering a $4.50 latte every day, you will save enough money to make the minimum down payment on a $500,000 house in only ten years. And as you grow older and your earning power increases, your saving habits will only produce greater rewards.
While retirement may seem a long way off, it is never too soon to begin saving for it. Compound interest favors those who begin saving earlier, and a 401(k) or Roth IRA can only grow larger the longer you spend paying into it.
Prioritize Paying Off Debt
Avoiding debt altogether is ideal, but doing so is seldom practical. If you have a student loan, car loan or credit card debt, reducing it to zero should always remain your main priority. Even if you are currently attending the very school you have taken out a loan for, paying off that debt while you are studying will benefit you greatly in the future.
Paying off debt may seem like an insurmountable challenge, yet it becomes far easier once you have adopted a strategy. Many people find success through the debt snowball method, wherein they make all of their minimum payments before spending as much as they can to eliminate their current smallest debt. Once they have eliminated that debt, they train their focus on the new smallest debt. Alternatively, the debt avalanche method prioritizes paying off the highest-interest debts one at a time while still making minimum payments in the meantime.
Avoid Credit Card Debt
Freely available, simple to use and accepted everywhere you go, credit cards make spending easy by design. Credit cards also have high interest rates relative to other forms of borrowing, however, which is why you should avoid using them as often as possible.
Credit cards are useful for building your credit score early on in your life, but they can quickly turn detrimental if you fail to pay off your balance at the end of each month. For example, if you charge $1,000 to your 20% APR credit card and only make $27 payments each month, you will ultimately wind up spending over $1,500.
Making sound financial decisions begins by partnering with a great local bank. If you live in Central Minnesota, then the Sherburne State Bank team is standing by to help you get a head start on your finances with our wide range of personal banking services. We welcome you to come visit one of our branches in Becker, Monticello or Princeton in person, or contact us today!