As a young earner, planning your finances strategically will help you become financially secure. In fact, a lot of people regretted not formulating a financial plan sooner when they were still young. To avoid consequences and to prepare you for whatever life has to offer and life’s challenges, let’s highlight three effective tips for young earners to follow:
1. Setting your financial goals.
Setting financial goals and creating a strategy to achieving them is the first step in taking control of your financial future. You will also develop a habit of saving your money when you set a financial goal.
Financial goals are time-bound; you set a target and make yourself obligated to achieve that for your future financial needs.
For example, your goal is to have your own home, retire early, and have your own business. These are your long-term goals because it takes time to achieve.
Saving money for your postgraduate education is another example of goal setting, but it is called a short-term goal, and this goal can help you reach your long-term goal.
Setting your financial goal is one of the tips for young earners to help them stay focused on their path to financial success. Also, by starting your financial goal early, they will accumulate more savings by the time they will need them.
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2. Budgeting.
The number one key to saving your money is budgeting. Budgeting is allocating your income for your essential expenses. It is a plan on how you are going to spend your money. Budgeting is not a form of restriction in spending on what you need. In fact, this helps you spend your money practically on things that are important.
When you create a budget, you are able to determine in advance if you have enough money for your savings.
If you are thinking about how you are going to budget your income, you can follow the 50/30/20 budgeting plan.
50% of your after-tax income will be allocated for your necessities. These necessities are your groceries, bills, transportation, utilities, loans, health care, education, and other basic needs.
30% or less of your after-tax income will be allocated for your wants. This is the budget for you to enjoy your life or money for fun. You may also use this budget if you are short on your necessities budget.
20% or more of your after-tax income will be allocated for your savings. This budget is for your future or money that will save you from debt in case there is an unexpected event.
3. Investing early and wisely.
This is one of the best tips for young earners and that they should not take for granted. Investing is important as saving, and even more. Investing means putting your money into an investment vehicle that can potentially make your money grow and earn a high rate of return. If you start early and save enough, you could even start to pursue financial independence. There are three common types of investment:
Stocks. When you buy a share of a company’s stock, you are entitled to a portion of the company’s profit or losses.
Fixed-Income Securities (Bonds). An investor makes a loan to an organization (borrower) in exchange for interest payment at specified terms and maturity dates. This is used to raise capital.
Investment Funds. Investment fund management companies manage this investment vehicle to produce income or capital gains for their investors. They collect funds from a lot of investors and invest the funds collected in securities such as stocks, bonds, and other money market instruments.
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