There are fundamental principles that we all need reminders of from time to time. As kids and grandkids are heading off to college, we're talking through 6 core principles to getting off on the right financial footing. We also include a chart demonstrating the power of saving 15% of your income.
Youtube video recap: https://youtu.be/LLlJjITn6B8
If you can follow these 6 steps, it's very likely your future self will thank you.
6 Tips to Begin on the Right Financial Foot
- Know where your money is going. Track your spending. Review your spending periodically so that you can hold yourself accountable. Budgeting brings awareness to your spending and money habits. There are many online tools that you can use to help yourself with this task.
- Don’t underestimate the impact of a large purchase on your finances. People often underestimate the impact of a large purchase such as a large house or car. Big purchases that you aren’t ready for can really impact your future self. The payments you make toward these purchases add up over time. Give yourself more freedom by buying smaller. It’s also important to keep in mind the total costs associated with those large purchases. Maintenance and insurance increase the costs of those big purchases. When contemplating a large purchase think about the time value of your money. This exercise can really help you make these decisions.
- Sign up for your employer-sponsored retirement plan. It’s important to take full advantage of the retirement plan that your company offers. Make sure that you are signed up for the company matching option if it is available. You want to take full advantage of compounding interest over the course of your working life.
- Invest in a Roth IRA. The Roth IRA gives you 30-40 years of tax-free growth. You may not have access to a Roth as you get older due to income limitations, so it is a good idea to take advantage of it while you can.
- Don’t skip risk planning. Young people often think of themselves as invincible, but life carries risks. Plan for those risks accordingly by utilizing health insurance, life insurance, and disability insurance. It is also important to create estate documents like a will as well as a financial and healthcare power of attorney.
- Discuss money in relationships. Discuss goals and financial expectations with your partner. Don’t shy away from discussing your feelings about gifts, debt, saving, and investing.
Visualize your future self
Your ability to create wealth impacted by your ability to earn as well as understanding how you spend money. If you have had trouble saving and investing, visualize your future self. When you are making a decision think about how it will affect you and your finances, not just now, but 20 or 30 years from now. What are you doing now to help your future self?
Outline of This Episode
- [2:35] Know where your money is going
- [5:15] Don’t underestimate the weight of bigger purchases
- [7:23] Sign up for your employer-sponsored retirement plan
- [9:27] Invest in a Roth IRA
- [11:23] Don’t skip risk planning
- [14:00] Discuss money in relationships
- [16:38] Today’s progress principle
Resources & People Mentioned
Connect With Chad and Mike
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