As an individual, it is important to have your financial situation under control at all times. This means that you need to know where your money is going today as well as in the future. While you may not think about where you are going to be five years from now, it is always a good idea to have a plan in place when it comes to your money.
What Is Your Current Financial Situation?
The first question that you have to answer has to do with your current financial situation. If you don’t know where you are now, you will never be able to create a reasonable money management road map for yourself. For those who aren’t used to managing their money, it can be a good opportunity to look at where your money is coming from and where it is going.
What Are Your Goals?
After you have figured out where you are now, you have to determine what you want to do with your money. Many financial experts will tell you to prioritize your money in the following order:
-Take Care Of Debt
-Save For Right Now
-Save For The Future
-Money That You Can Spend On Entertainment
If you are deep in debt, your first priority should be to get out of debt. If you don’t have a lot of debt, your goal should be to save for both the present and the future. Anyone who has no debt and sufficient savings can start building a vacation fund or a fund dedicated to expanding your car collection.
How To Accomplish Your Goal In Equal Installments
People tend to underestimate how much money can be saved over the course of 60 months. Let’s say that you have a $20,000 credit card debt, and you want to save for a vacation to Florida sometime in the next five years. While this may seem difficult on the surface, you can eliminate your debt while saving at the same time. By putting $500 a month towards your debt, you will have paid your debt in roughly three years. You will then have roughly $12,000 to put toward your vacation to Florida.
Cut Debt And Increase Retirement Savings
Cutting your fixed monthly expenses can help you put more money in the bank right now. Homeowners can rent out a bedroom in their home or the other half of their duplex to lower the monthly mortgage payment. Selling your car will eliminate your car payment, your insurance payment and even net you a small profit. To grow your retirement account, you can take advantage of employer matching as well as payroll deductions that come from pre-tax dollars.
Stay The Course
It is essential that you stay the course. Once you have created a plan, it is up to you to stick to that plan. While it may be difficult, you have to have the willpower to meet your goals within a five year window. If you do stray, the best thing to do is to get back to your budget as soon as possible.
Creating a financial plan can help you grow your savings, reduce your debt and ensure that you can retire at a reasonable age. The key is to prioritize, take advantage of employer matching for retirement accounts and get rid of anything that you don’t need at the moment. Once you get started, you will find that saving money and cutting debt is easier than you think.
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