Just thought I’d pass on this spot-on list posted in the most recent Planning Perspectives from NAPFA. It may be targeted towards young professionals, but really applies to people of all ages.
1. Think long term. Where do you want your finances to be in five, 10, or 40 years? If you constantly focus on what you want right now, then your financial future is in grave danger.
2. Don’t live a celebrity lifestyle while you’re earning a modest income. Face it—as a young professional, you are likely not going to be making a six-figure income. Live and spend in light of that fact. Learn to differentiate between “wants” and “needs.” Spend on “needs” first, and if you have money left over after necessary expenses and savings, then you can afford to buy some “wants.”
3. Create a budget and monitor it regularly. This is crucial to having financial success in life. You can easily set and track a budget by using a budgeting website, app, or other service.
4. Pay off all unnecessary debt. It’s difficult to save money when all of your extra income is going toward debt payments. If you’re stuck with a debt load with high interest rates, focus on paying it off. Once excess debt is gone, you will have extra money to begin saving for future goals.
5. Avoid accumulating unnecessary debt at all cost. As a general rule, if you don’t have the money, don’t spend it. Sounds simple, right? High credit card debt is awful. Not only can it ruin your credit, it can snowball into even greater debt if you are not careful.
6. Set financial goals. Think about what you want your financial future to look like, and decide how you’re going to make it happen. Write your goals down, and put them somewhere where you will be reminded of them often.
7. Save for retirement. If you ever want to retire, it’s important to plan for it. For young folks, the best retirement savings accounts are a 401(k) (or another employer-sponsored retirement plan, such as a 403(b), SEP IRA, Simple IRA, or Thrift Savings Plan) and a Roth IRA.
8. Save for other future goals. Want to buy a house, automobile, or engagement ring? It will be difficult to make large purchases if you don’t have adequate savings.
9. Find friends whose financial values align with yours. The people with whom you surround yourself greatly impact your spending (or saving) habits, so choose wisely.
10. Start immediately. Time is on your side. It is much easier to implement healthy savings habits at a young age. Also, compound interest can help provide more growth in your investment accounts over time.