5 Steps Towards a more Financially Secure Future!
“Earning money and saving it smartly are the two most important things that define the financial stability of a person.”
Living in a world where you’re constantly under stress to earn enough and save sufficient – to pay off your bills and cover up your monthly expenses – having a proper plan of action is evidently important. Because, believe it or not, a financially secure future not only allows you to rest assured and enjoy your life at your own terms and conditions, but also have a peace of mind when you’re old and retired.
So, what exactly is financial stability? In a layman’s language, it’s a state wherein you feel confident about your financial position. You don’t have to worry about paying bills because you’re earning well and saving enough to lead a good, maybe a lavish life. You do not have any debts to worry about and have secured enough to even cover up for unforeseen emergencies. At the same time, it’s important to understand that being financially stable does mean you’re rich, it means you don’t have to stress about funds and you can easily utilize your energy on planning for other important things in life.
Here we’ve mentioned 5 steps to plan a financially secure future and rest assured!
Step 1: Be Accountable and Responsible
The first and the foremost step to being financially secure is knowing your responsibilities and accepting them at the earliest. You must have a hold on your future and ensure your financial choices would be wise enough not to harm you or your dependents in any manner. Be involved from the very beginning. Seek advice from a financial advisor and follow it. Understand your rights and ensure your credit report and credit score in your financial responsibility card showcases a positive graph only.
Factors that impact your credit score are as follows:-
- Paying bills on time
- Your total debt amount and credit limit
- Number of banks accounts you own
- Recent enquires conducted on your credit score
- Length of time spent on building a credit score
Step 2: Planning is Important
Planning stands second on the list of steps you must take in order to ensure your future financial security. For a reason, managing finances is not possible if you do not plan everything properly! Create a proper roadmap by jotting down your financial goals. Typically, financial advisors advise three important key points to consider when setting goals.
- Be specific: Define your goals – what you wish to achieve and when. Your goals can be short term or long term on the basis of your present earning and future prospects.
- Be realistic: Be certain that what you plan in terms of your goals is realistic in nature. Defining goals that are highly speculative cannot and will not do any good to you.
- Pen down your plan: It’s important to maintain a record of your defined financial goals and mark off all your key milestones as and when you achieve them. Don’t jump! Go step by step!
Step 3: Understand your Present Financial Position
The third step is to understand your present financial position in order to speculate whether or not your above defined plan is feasible in nature.
Considering an example, your current compensation is $4000 a month, which is subject to a number of deductions. The actual amount of compensation you receive excludes the federal income tax, social security deposit, Medicare and more. The amount you actually receive is the one wherein you need to pay off all the bills, utilize to fulfill your basic day-to-day needs, and even save for your future needs. Review your pay stubs and ensure you understand all the deductions. Only then can you follow your prepared plan of action.
Step 4: Prepare a Budget
Once you understand your financial position, it’s time to formulate a proper budget plan. Though a tedious task, budgeting has its own list of pros that allow you to be more systematic, considerate, and a smart planner in life. Budgeting allows you to track your earnings as well as expenditures and stops you from overspending. Financial experts claim that an individual must spend:-
- Only about 30% of his/her monthly income in the form of rent/mortgage.
- About 30% on himself/herself, and
- Nearly 10 – 20% of the remaining money towards his/her future – savings account, retirement, and emergency funds.
To ensure you’re not overspending, it’s best to have a monthly figure set for yourself. Regardless of exactly what you will spend your money on, try and be as purposeful and reasonable as possible. The reason being, an extra penny spent today accounts to an extra penny saved for the future.
Step 5: Start Investing
For most of us, depositing money in our savings account typically makes for the best means to save money and use it in times of uncertainties of life as well as achieve financial dreams such as pay off college fee, travel, etc. However, investing money in other forms such as buying equity shares, debentures, mutual funds, precious metals, investing in initial public offerings, etc., is a great way to put your funds to work and earn profits. But, each of these investment means comes with its own set of risk factors as well.
Before you begin investing your hard earned money, it’s important to understand the colossal range of options available at hand and their associated risk factors. Different investment options bring to plate different rates of return. Though most financial experts claim that the higher the rate of return, the higher are your chances of losing your investment and the lower the rate of return, the safer your investment shall be, in the market.
Furthermore, the best time to invest is when you’re young. For a simple reason that your investments will have more time to grow and no matter how volatile the market remains, your stocks will remain safe and grow with time.
The bottom line, financial stability doesn’t mean you’re always cautious about each and every penny you spend but careful about how systematically you save. While this seems like a plan that demands too much of attention and precision, as a matter of fact, once you’ve paid attention to above mentioned 5 steps to systematic spending, no one can stop you from leading a financially secure future!