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 to whatever life has to offer and life’s challenges, let’s highlight 3 effective principles that young earners should 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.
Example, your goal is to have your own home, to 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 short-term goal; and this goal can help you reach your long-term goal.
Setting your financial goal will help you stay focused on your path to your financial success. Also, by starting your financial goal early, you will accumulate more savings by the time you will need them.
The number one key in saving your money is through 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 what young earners commonly 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. 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). A loan made by an investor to an organization (borrower) in exchange for interest payment at specified terms and maturity date. This is used to raise capital.
Investment Funds. This investment vehicle is managed by investment fund management companies 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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