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Eight of the most important things to understand about money if you want to live a comfortable and prosperous life :
1. Learn Self-control
Although you can effortlessly purchase an item on credit the minute you want it, it’s better to wait until you’ve actually saved up the money. If you make a habit of putting all your purchases on credit cards, regardless of whether you can pay your bill in full at the end of the month, you might still be paying for those items in 10 years. If you want to keep your credit cards for the convenience factor or the rewards they offer, make sure to always pay your balance in full when the bill arrives, and don’t carry more cards than you can keep track of.
2. Take Control of Your Own Financial Future
If you don’t learn to manage your own money, other people will find ways to (mis)manage it for you. Some of these people may be ill-intentioned, like unscrupulous commission-based financial planners. Others may be well-meaning, but may not know what they’re doing.
Take charge and read a few basic books on personal finance. Once you’re armed with personal finance knowledge, don’t let anyone catch you off guard. Understanding how money works is the first step toward making your money work for you.
3. Know Your Money Goes
Once you’ve gone through a few personal finance books, you’ll realize how important it is to make sure your expenses aren’t exceeding your income. The best way to do this is by budgeting. Once you see how your morning java adds up over the course of a month, you’ll realize that making small, manageable changes in your everyday expenses can have just as big of an impact on your financial situation as getting a raise. In addition, keeping your recurring monthly expenses as low as possible will also save you big bucks over time.
4. Start an Emergency Fund
No matter how much you owe in student loans or credit card debt, and no matter how low your salary may seem, it’s wise to find some amount – any amount – of money in your budget to save in an emergency fund every month.
Having money in savings to use for emergencies can really keep you out of trouble financially and help you sleep better at night. Also, if you get into the habit of saving money and treating it as a non-negotiable monthly “expense,” pretty soon you’ll have more than just emergency money saved up: you’ll have retirement money, vacation money and even money for a home down payment. Don’t just sock away this money under your mattress; put it in a high-interest online savings account, a certificate of deposit or a money market account. Otherwise, inflation will erode the value of your savings.
5. Start Saving for Retirement Now
You need to prepare for your retirement well in advance. Because of the way compound interest works, the sooner you start saving, the less principal you’ll have to invest to end up with the amount you need to retire and the sooner you’ll be able to call working an “option” rather than a “necessity.”
Company-sponsored retirement plans are a particularly great choice because you get to put in pre-tax dollars and the contribution limits tend to be high (much more than you can contribute to an individual retirement plan). Also, companies will often match part of your contribution, which is like getting free money.
6. Get A Grip on Taxes
It’s important to understand how income taxes work even before you get your first paycheck. When a company offers you a starting salary, you need to know how to calculate whether that salary will give you enough money after taxes to meet your financial goals and obligations.
7. Guard Your Health
If you’re uninsured, don’t wait another day to apply for health insurance. You can save money by getting quotes from different insurance providers to find the lowest rates. Also, by taking daily steps now to keep yourself healthy, like eating fruits and vegetables, maintaining a healthy weight, exercising, not smoking, not consuming alcohol in excess, and even driving defensively, you’ll thank yourself down the road when you aren’t paying exorbitant medical bills.
8. Guard Your Wealth
If you want to make sure that all of your hard-earned money doesn’t vanish, you’ll need to take steps to protect it. If you rent, get renter’s insurance to protect the contents of your place from events like burglary or fire. Disability-income insurance protects your greatest asset – the ability to earn an income – by providing you with a steady income if you ever become unable to work for an extended period of time due to illness or injury.
Source: http://www.investopedia.com/articles/younginvestors/08/eight-tips.asp |
