As a young adult, you may feel that you’re still young and have plenty of time to plan and grow financially, especially when it comes to money management. But if you look at the world around you, you will notice that things are moving at a much faster pace than before.
How money management has changed
The Covid-19 pandemic has completely changed the way we do most routine things today. A lot more has changed in the past 2 years than it probably has in the past decade. Therefore, it’s only fair that you upgrade your money skills as well. After all, a great relationship with money is one of the best things that will happen to you in life.
In your 20s, your financial goals may include saving up for the immediate future or for a specific purpose such as buying a car, a new gadget, or even investing money in a high-yield savings account. But there’s so much more you can do with your money and even make your money work for you so that your wealth multiplies with time. Here’s a plan on how to refresh your finances this Spring.
Invest for your long-term goals
If you’ve already started investing, great job, you certainly have the right idea. But it’s probably time for you to up the ante on your investing. The first step is to evaluate your existing investments. Ask yourself why you’re investing and what your investments have yielded you so far. Your investing practices need to match your long-term goals.
One way to do this is to check on your retirement fund. Yes, it may seem too early to start thinking about retirement, but the sooner you start saving up, the more you will have in your nest egg. As a rule, try and save up at least 10% of your income towards your retirement every year. If your employer offers a matching contribution scheme and you’ve been setting aside just enough to match your employer’s contributions, start setting aside more.
Money that you need for investing in your short-term goals should not be invested. This means that the money you need for expenses that are expected to occur within the next 5 years or so must be readily available to ensure liquidity. Now that’s smart money management.
For the intermediate goals you expect to achieve in the next 5 to 15 years, you should consider investing right away. This could be for a variety of purposes including your kids’ education, an early retirement, buying a house, etc.
Improve your credit score and make use of it
It’s pretty common knowledge that a great or good credit score can give you a lot of benefits financially. So, if you do have a good or better credit score, why not make it work in your favor? For example, if you’ve got a mortgage going on, use your credit score to get it refinanced with better terms and a lower interest rate. Even if you manage to get half a percent reduced on your interest rate, you will end up saving tens of thousands of dollars on a long-term loan.
Look out for other financial advantages too. See if you qualify for a better credit card with more benefits, a higher credit limit, and a lower rate of interest rate.
Invest to protect yourself and your loved ones
Even though you already have insurance, you should be aware that it may have become outdated. The insurance plan you took when you were 25 won’t work for you in your thirties when you have a home loan and kids. Here are a few options that can help you protect not only yourself but your loved ones as well.
- Get a better insurance plan: If you co-own a home with a partner, spouse or anyone else, get a term life insurance plan. This is also good if you have a loan with a co-signor or if someone depends on you for support.
- Update your beneficiaries periodically: This is important. Check if your beneficiaries are updated with your bank account and other investments. Outdated information can lead to problems in the future. The money will then go to someone else rather than the intended person.
- Plan your estate well: Estate planning is crucial if you want your assets and properties to be handled well. Get an estate attorney to draft a will, draw up guardians for your kids, and appoint a medical point of contact if something unfortunate happens to you.
Take time out for yourself
As much as it is important to earn, save, invest and grow your wealth, you must take time out for yourself. If you’ve been pushing yourself and working hard right from the start of your career, you probably haven’t spent much time for yourself in leisure. Now that you’re in a position where you’re stable in both your career as well as your finances (or when you get to that point), consider slowing down to plan the next few years.
If you have enough saved up to take a break from work, do it. Taking some time off and unwinding can help rejuvenate your senses and give you a fresh perspective on life. You may unearth plans and dreams that you have always wanted to pursue but have collected dust over the years because you didn’t have the time to go after them.
Or if you want to earn more, look for ways to increase your income whether it is an increase in salary or business income. Use this time to talk to a financial planner and assess your future. Taking time off from your normal busy schedule will give you the headspace you need to think clearly, define your future goals and chart out a path to achieve them.
Give to those in need
Not everything about money management is related to earning and saving up. Financial growth and maturity also have a lot to do with looking out for those in need. As your income and wealth grow, keep an eye out for those who are less fortunate than you. When you’re able to meet your needs in a more comfortable manner, you will probably have a lot more leftover than you need. Use this money management tip to help people who are struggling.
Use your excess money or see how you can spare some money from your assets to donate towards meaningful causes. This could be the legacy you leave behind when you go. You not only looked after yourself well but also gave to those who did not have as much as you. Financial maturity comes not just in growing wealth. It is also in understanding the needs of the community you live in and giving back to it in every way you possibly can.