Few things in life are a one-step process. Getting a degree takes two, four or more years, depending on the degree you’re going for. Achieving your career goals can take years, too. Taking control of your finances is no different; it’s a multi-step process that can’t be achieved overnight.
With this blog post, we’re starting an occasional series on some of the ways you can start taking control of your finances.
Step 1 – Savings
The first question to ask yourself is: why are you saving? There are two things everyone should save for – a rainy day and retirement. Both will arrive one day, and probably sooner than you think!
Saving for a rainy day means creating an emergency fund of cash and building it to a certain level that would be able to sustain you and your family in case of a crisis, such as a job loss or major car or home repair. Most experts agree you should have enough in your fund to cover six to eight months of living expenses.
If money is tight, building an emergency fund may seem difficult, and it may take quite a bit of time, but it’s absolutely essential to do if you’re committed to taking control of your finances. It may help to start out small, saving just $25 or $50 out of every paycheck. You can also have your savings deposit automatically taken out of your paycheck; that way, you make sure to pay yourself first before dealing with other expenses.
The other must-do savings task is putting money away for retirement, and it’s much more complicated than just creating a cash reserve for emergencies. You’ll want the money you set aside for retirement to grow between now and the day you’ll need it. That means making smart investing decisions.
Fortunately, you have lots of retirement investing options—like 401(k)s and Individual Retirement Accounts (IRAs). Many of them can also help lower your immediate tax burden. If you’re unsure where to start when it comes to creating a retirement plan, you can find plenty of free advice on federal government websites like IRS.gov, kiplinger.com or fool.com. Check with your employer to see if the company offers a 401(k), and be sure to participate if they do.
Finally, know when to get guidance. You can find many reputable financial advisors who can help you create a game plan for reaching your retirement savings goals. How to choose the right one for you will be the topic of a future post!