Being “wealthy” can be as much a product of luck as personal accomplishment. For those of us who are not born into money, though, it’s on us to attain it. But how do we set ourselves up for financial success if we’re not used to having money or practicing prudent financial behavior?
To free yourself of money-related stress and pave a path toward long-term security, implement these long-term money management tips ASAP.
#1 Get Out of Debt
If you’re making minimum payments and keeping pace with your other financial obligations, your debt might not seem like it’s constricting your lifestyle.
But by avoiding paying more of your principal, you’re costing yourself thousands in interest over the long term.
Consider what this lost money in interest could turn into if you instead invested in the stock market for 30 years and it’ll make you want to get out of debt as soon as possible, even if your lifestyle suffers in the interim.
Following a debt repayment plan like the snowball, avalanche, or snowflake methods will give you a course to follow and stay motivated. If these strategies aren’t able to eat into your debt, then debt relief or bankruptcy might become necessary options.
These solutions aren’t free, but they can be the catalyst needed to forge a new path. Freedom Debt Relief reviews on sites like Consumer Affairs, Trust Pilot and others portray many successful outcomes, though debtors do describe the process taking anywhere from two to four years.
#2 Learn How to Budget Realistically
Tracking daily expenses might serve a purpose if you’re deep in debt or your spending habits need to change. But to achieve long-term financial success without pulling your hair out, you need a set-it-and-forget-it budget.
How you develop yours is up to you, but generally, this type of budget gives you oversight on where your money is going without requiring you to track monthly purchases and itemize spending meticulously.
For example, you could practice the 50/30/20 rule, in which needs comprise half of your budget, wants another 30 percent, and the remaining 20 percent goes to savings and debt repayments.
Or you could automate your monthly payments (housing, debts, savings, etc.), pay for specific categories (gas, groceries, dining) with credit cards that reward those purchases and dedicate a monthly amount of cash for leisure purchases to ensure you don’t overspend.
#3 Build Your Emergency Fund
Many Americans continuously live on the verge of financial ruin. Per CNBC, over one-third of U.S. households experienced a major unexpected expense in 2017, yet only 39 percent of all survey respondents said they had enough to cover a $1,000 emergency.
Between medical bills, car repairs, losing work or other unpredictability, living month to month with a thin financial cushion is stressful. Even if you don’t feel like you have room in your budget to start an emergency fund, any amount helps ingrain the habit.
It might have to strip out a regular inexpensive habit (such as buying coffee on the way to work) or pick up an odd job or sell unneeded possessions. Whatever yo
u do, commit to a monthly contribution plan and increase your amount as your income allows.
Ideally, you want at least six months of living expenses saved up, and even more if you anticipate a longer job search in your field.
#4 Assess & Track Your Net Worth
Of all the numbers and indicators that personal finance involves, our net worth is by far the most vital metric. As Rob Berger writes for Forbes, “Net worth is the financial scoreboard. It shows your day to day and month to month progress on a grand scale. It’s also very easy to track.”
If we’re shelling out more than we’re making each month, our net worth will decrease. If we’re making more than we’re spending, it’ll increase. Even if we don’t feel like we’re getting ahead, such as repaying debt, the lower that debt goes, the more net worth increases.
You can track your net worth on a single page. It includes your monthly debt payments, living expenses, income and assets (you may not want to include depreciating assets, such as cars, but your call). If you have assets like a home or business, err on the conservative side when appraising, so you’re not left too thin in a market flop.
Aside from regularly tracking your net worth progress, consider your money ratio to objectively evaluate your success (i.e., a higher salary should warrant more savings than a modest income).
#5 Max Out Retirement
Part of being a good money manager is making sure you have adequate funds down the road. Having an emergency fund, healthy nest egg, and assets help, but your retirement funds are what will really keep you afloat in your golden years.
If your employer offers a 401(k), be sure to prioritize as much of your budget as possible to max it out. That amounts to $18,500 per year. If you don’t have access to a 401(k), opt for a traditional or Roth IRA, which allows up to $5,500 in contributions per year.
The main difference between the two is that a traditional IRA is funded with pre-tax dollars that can be written off on taxes, whereas a Roth is funded with after-tax dollars, meaning you can withdraw your investments (and gains) tax-free in retirement.
The earlier you start maxing out retirement accounts, the more time you have to withstand market fluctuations and earn the long-term yields that investing has proven over the years.
Perhaps the best long-term money management tip is to stay conscious of how you’re interacting with your money. In an ideal scenario, you’re doing all of the above things without feeling financially crippled.
When we feel like we’re getting value out of how we spend our money, we’re that much more empowered to stay the course with our overall goals.
What are some long-term money management tips you can share?