"If I had done that when I got out of school, I'd be retired by now!"
I hear that from folks all the time. Whether it's a job opportunity, an investment or just saving money, simple financial actions over long periods of time can lead to meaningful financial progress. Whether you're young or old, here are six financial strategies to live by.
1. Pay yourself first: Make it a habit to save a portion of your take-home pay every month. No matter what happens in your life, keep your expenses in balance so you can always save. While you should always contribute to your employer's 401(k) or other contributory retirement plan, don't make that the only place you save. It's important to save in a nonretirement account so that you'll accumulate money for an emergency fund, a car or a down payment for a home. As for an annual savings goal, make it your target to save at least 10 percent of your pay.
2. Invest every month: Don't just park those savings in a bank account each month. Invest them where they can grow over time. Use a quality no-load mutual fund that will allow you to make automatic money transfers of as little as $25 every month. You should also open a brokerage account and use it to build a portfolio of several mutual funds. Don't put this off because just you don't know how to do it. Seek professional advice from a local financial advisor in your area to get started.
3. Avoid credit card debt: One of the biggest causes of financial difficulty and individual bankruptcy is overwhelming credit card debt. There's just no good reason to buy things on credit that you can't afford to pay for immediately. Credit card debt is a trap, and you should make a point of never getting stuck there.
4. Don't drive into debt: Buying new wheels often means a car loan with a hefty monthly payment and higher insurance costs. Don't fall into the trap of buying a new car every three to four years and rolling over those loans and leases. Instead, save up, buy a used car in good condition and drive it for at least 10 years. If you live in an urban area, consider car-sharing options such as Zipcar and Uber, which can make it practical to do without owning a car.
5. Don't be house poor: Renting can be a perfectly good option for many folks. Don't be in a rush to buy a home until you have saved up an emergency fund, a sizable down payment and your income and job are secure. When you do buy, make sure to limit your total housing budget (that's mortgage payment, real estate taxes, insurance, maintenance and utilities) to not more that 30 percent of your take-home pay. If that means a smaller place is all you'll be able to afford, then so be it. Better to live in a smaller house and have financial security than in a big place and have financial stress.
6. Rollover that old 401(k) to an IRA: Most folks change jobs five or more times over their working lives. If you followed the rules above, each time you switched, you left a 401(k) account at your former employer. The first time you change jobs, open a rollover IRA, transfer your former employer's 401(k) account into it and get it reinvested immediately. If you do this the first time, you'll be prepared for the next time you change jobs.
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