Becoming financially independent is not something that just happens overnight. It requires forethought, planning, and a lot of learning along the way. When you get your first paycheck, you might think the smartest thing you can do with it is to save it, but as you get older you learn that there are far smarter things to do with your money.
Here are just a few smart things you should try to do with your money before you reach forty – how many of these are you ticking off?
1. Check your statement every damn week
It’s so easy to let your incomings and outgoings go without a second glance, only checking at the end of the month when you feel strapped for cash. But to be truly financially successful you need to know what’s going on, cancel any payments you don’t need, have a proper understanding of any debts you have and how you can pay it off and know where you stand financially. You should do this before you do anything else. You can’t start learning to invest unless you can confidently say you’ve paid everything off.
2. Create a boring (safe) investment strategy
Once you get investment literate, it can be tempting to play around and buy stocks looking for big payoffs. You’ve probably heard about so-and-so who invested in something and made huge money, and while that’s all well and good. You don’t want to take unnecessary risks with your money. Wall Street analysts have seriously next level speculation skills to know what to put money in and pull money out from. Sure, those caught up in the big win game must have many fist-punching adrenaline-pumping moments. But it’s better to play it safe, and boring.
The best way is to have a global portfolio of investments, like low-cost ETFs. You can seek advice or even find a financial advisor who can give you more of an idea of what to do with your money and how to approach it if you’re not fully comfortable with investing, which definitely doesn’t sound fun, but you can rest assured that you won’t be losing everything to a badly timed risky investment in the future!
3. Set up your 401(k) or PPP
One of the smartest things you can do is set up a 401(k) (or personal pension plan in the UK) and make a contribution to it each month. A certain amount comes out of your salary and goes to your pension and you will barely feel it. Depending on the pension plan your company uses, you’ll have added extra benefits too. When you retire, you’ll need an income – and you are never too young to start saving for the future.
4. Insure your life
In the UK, you need life insurance to get a mortgage. It’s tempting to get the cheapest one, after all, you’re paying an arm and a leg for a house, but don’t do this. Think long and hard about what you actually need and what the benefits and terms are of the life insurance policy you’re signing up to – it feels great to be covered by a policy, but you do need one that suits your lifestyle and your needs.
5. Give your goals a kick in the ass
Give yourself financial goals and deadlines. This is the only way you’ll ever stick to them, save x by y, pay off your debt by z. It’s easy to just let money flow, especially when you don’t physically see it. Having so many automated outgoings means that you can massively lose sight of the meaning of your money or how to keep hold of it. Make sure that doesn’t happen by giving yourself financial goals and kicking yourself in the ass to achieve them. If you want to save money, save. Give yourself a ‘no spend’ restriction and see how far that gets you.
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