It is a sad fact of life that the cost of living has grown faster than the wages hardworking Americans make, which makes financial planning and investing in the future tougher than ever. Many millenials graduate from college with over $40,000 in school loans, while only finding jobs that are barely above the living wage. When young professionals hardly have enough income to cover their living expenses, it’s impossible for them to invest in financial planning, such as saving for a down payment for a house or a retirement fund.
If you are in this position, we’ve put together a few tips from financial planning experts, to help you reduce your expenses and secure your future:
- Choose the right insurance coverage.
These days, every purchase you make comes with an optional insurance plan. Appliances. Cell phones. Electronics. Jewelry. Underwear. For a relatively small amount more, your new item is covered if it is ever lost or damaged.
The thing is, the manufacturers of these items would go bankrupt if these insurance plans were actually a good deal to you. These companies aren’t offering to insure and protect your purchase because they like you; the only reason they offer them is because they make a little extra (or a lot extra) money off of the consumer (hint: that’s you).
Instead of adding a few dollars (or a few hundred dollars, depending on what is being insured) to the purchase of your dishwasher, engagement ring, iPhone, and digital camera, put that money towards insurance coverage that really matters, such as term life insurance or disability insurance. - Use gift cards to stick to your budget.
It is too easy to swipe your debit card for a small purchase here, and there, and there, until you’ve overspent. You might have heard financial experts suggest sticking to cash or an envelope system to get on a budget and stick to it. This is a great way to manage all of those small purchases.
An alternative to the envelope system is to buy yourself gift cards to the places you frequent most, and only allow yourself to spend the value on it in a certain time period. This takes the guilt factor out of enjoying your morning latte, but also helps you stay on track with your financial planning goals. - Give yourself money to enjoy life.
Yes, it’s beneficial to tighten the belt buckle and reduce the extra spending in order to make steps towards responsible financial planning. However, it will be hard to sustain unless you let yourself enjoy life a little. Look over your spending over the last six months and work in a reasonable number that will help you enjoy life while you save money. - Set up an emergency fund before getting out of debt.
It might feel counter-intuitive to have money sitting in the bank doing nothing for you while you have debt that you are paying interest on every day. However, unexpected emergencies come up, no matter what walk of life you are in. If all of your money is going straight to your credit cards, you’re up a creek without a paddle if your car breaks down or any other unplanned expense arises. When this inevitably happens, you’ll be stuck putting your emergency on a credit card, digging you back into the black hole of debt, which makes you loose traction and get discouraged.Before being aggressive about paying off your debt, put your expendable income into a savings account until you have $1,000 to fall back on. Then you’ll be in a good position to get rid of those credit card bills and develop a sound wealth management strategy!
- Try before you buy.
If you are considering a big life change that will impact your financial security, practice living under the financial restrictions you’ll have for a few months before making the leap. For example, if you are expecting a child and want one parent to quit working to stay home with the baby, cut your budget down to one income for six months prior to actually quitting. This will make the necessary cuts less shocking, and will help you build a great savings before D-day.
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