Schools teach us about history, science and the arts. Why do they not teach us about managing our money, when no matter what we have studied, we all have to do that? Even sportsmen and scientists have to manage their finances.
As Newton famously remarked after losing 20,000 Pounds due to his speculation in the South Sea Company stock in the 1720s, “I can calculate the movement of the stars, but not the madness of men.”
Although Sir Issac Newton was undoubtedly a great scientist, shouldn’t we be better able to manage our finances than he did? Around 58% of Americans do not have a retirement plan in place for how they’ll manage their finances when they get old. For all these people, this article should be a wakeup call. While people generally believe they’ll need about $300,000 to support themselves in retirement, the average American has only about $25,000 saved by the time they retire. Average household credit card debt among Americans now stands at a distressing $15,204.
To save yourself from being another statistic like the above, follow the steps given here to live a financially comfortable retirement.
1. Make a Budget
This is the first step of the journey to financial freedom. Keep a track of your expenses during the month. Now you know how much you are spending and on what. For the next month, prepare what you would like your budget to be like. And then track your actual expenses for that month. See if you were able to stick to your budget plan. Make appropriate adjustments if there are major differences between what you planned and the actual expenses. Keep tracking your budget month after month to get closer and closer to your planned budget.
2. Spend Smartly
There are many times when you require an item for a very short time. Then it is smarter to rent it instead of buying it. Also you can find many deals on items where you can pay in installments without being charged any interest. Basically spend less when you can.
In the same way, if a mortgage costs you less than renting, then it is better to buy your own home. Just make sure that the monthly EMI payment is much smaller than your salary.
It is always useful to have a higher credit score. To get this you would have to have a credit card. Even if you don’t use one or feel the need to use one, it would still be smart to apply for one, just to get a higher credit score. You always have the option to lock it in your drawer, in case you’re scared of running up crazy bills.
Always spend like you would spend cash, with what you have in hand. Not what you will have later on, like when your salary check will come due.
3. Choose Smart Investments
Find out about different investment schemes. One of the simplest ways to get extra money is from your employers’ retirement plan, if they make matching contributions. When investing in the stock market, don’t gamble. Find out all about the company that you want to invest in before plunging in. And make sure that you are well insured before taking any other investment risk.
4. Build Your Nest Egg
There are many wasteful expenses that we make. These could easily be converted to grow our savings instead. You never know when unforeseen events can tax your finances. Emergencies can also dip into your savings. To finance your Nest Egg, keep adding to it regularly. Even small additions all add up over time to accumulate into a substantial amount.
5. Pay off Your Debts
When you retire, your income stops. So you have to plan to retire all your debts before you do. Pay them off as soon as possible. You’ve shouldered responsibilities your whole life. When you retire, you should be answerable to nobody. So make sure your debts are all repaid well in time.
This is a simple plan to follow. Step by step, you will be able to get your finances in order so that retirement is the enjoyable, relaxing moment it should be. The lack of an active income will not be a problem when you have adequate savings, some passive income from investments and no debts to worry about.
Wishing you a peaceful and relaxing welcome to your Golden Years.
About the Author: Sam has been confounded with how to manage his finances. Going through various journals and reading from several financial experts has helped him get a grip on what he should be thinking about and how he should be managing all the different aspects of managing his money.