Build financial security with this complete roadmap: smart budgeting, debt reduction, automated savings, and strategic investing tips.
The following is a guest post from my bloggy friend Megan Isola. Interested in having a guest post on my website? Click here for my guest post submission form.
Creating a financially secure future for yourself eliminates the need to worry about where your next dollar comes from. However, getting to that point means you need to take actions now that help you set aside money, build upon what you’ve set aside, and then put the money to work. It sounds like a daunting task, but you can make it easy with a financial roadmap.
The financial roadmap, also known as a financial plan, is your guide to reaching your life’s goals. Its purpose is to show you where your money goes and where you can find ways to save. When you identify what it is you want from your income, you’ll find that the roadmap makes it easier to reach your destinations.
Start With a Budget for Spending and Savings
A budget works by generating a visual of where your money comes from and where it goes. It helps you stop spending on impulse and gets you to ask yourself if you need to spend the money on something that’s a want instead of a need. The result is that you hold onto more of your money and use it to grow your wealth.
A typical budget includes items such as mortgage/rent, utilities, loans, and any other regular outflows. One of those outflows should be an amount that’s easily set aside for savings. This amount can be further divided into funds for emergencies, investments, and retirement accounts, all of which help you build reserves for the future.
Utilizing Banking Technology to Build Your Reserves
Banks offer a variety of automated processes that let you “set it and forget it” when it comes to saving or investing. That is, you allocate a specific amount of your income to be taken out of your account after you’ve been paid and have the money put aside for a specific purpose. From there, the amount can be placed into savings, a retirement account, or transferred to an investment account.
It’s easy to automate your banking app and have it take an amount that you’ve designated in your budget. The app then sets the money aside in a bucket you’ve assigned for a particular purpose. The amount is no longer in your main balance, preventing you from spending it.
Reduce Credit Card Debt and Minimize Its Use
Credit cards are helpful tools when it comes to making purchases when you’re short on cash. However, they have high interest rates that are prone to fluctuation, something that builds quickly if you don’t pay down your debt every month. The interest you pay is money that’s lost to serving your debt and is something you’ll never regain.
Use your cards sparingly, and only when necessary. Being disciplined in the use of your cards results in you keeping more of your money for yourself instead of giving it to the credit card company.
Make an Extra Payment on an Installment Loan
An installment loan has a principal amount, and interest is charged on that principal. The amount of interest you pay goes down as the principal balance is repaid. This type of loan is usually paid monthly, resulting in 12 payments over a year. You can pay off more of the principal with a 13th payment, and reduce the amount you pay in interest.
Every time you make an extra payment, you shorten the length of the loan. This helps you get out of debt sooner and frees up money that you can use for securing your future.
Roll Back Your Spending on Extras
There’s no time like the present to do a self-audit to find out where you’re spending money. It’s easy to spend money and not realize how much you’re putting out for little things that make you feel good. After a while, that feel-good spending adds up and eats away at your bottom line. You may find yourself coming up short for the month, and you’ll also have less money to set aside.
You don’t have to cut out all of your spending habits, but you do want to reduce as many of them as possible. Create a line item in your budget for extras, and stay within that spending limit. This helps you avoid becoming frustrated with not being able to enjoy life a little, yet keep your spending in check.
Max Out Your Retirement Account Contributions
Contributions to your retirement account are known as pre-tax or tax-deferred accounts. The money you contribute to an IRA or 401(k) is taken from your income before it’s taxed and allowed to accrue until you reach retirement age. If you’re under 50, the maximum contribution you can make to your retirement accounts is $7,000, and $8,000 for those over 50.
When you contribute the maximum amount to your retirement accounts, you reduce your tax liability. That is, you lower your income taxes through your contribution. Meanwhile, the money that’s in your retirement account grows over time at a predictable rate of return and provides you with regular retirement income. Taxes are paid on the distributions, but usually at a lower rate than when you were employed.
Put Your Extra Cash in Stable Investments
Investing doesn’t have to involve watching the stock market and making trades in the hopes of catching a profit. You can put your money into mutual funds, ETFs that track indexes, and buy stocks that pay dividends. Life insurance policies can also be used as investment vehicles for building your wealth over time.
Consult with an investment advisor to get started with investing. The sooner you start, the more you can earn over time, and you can always increase the amount you invest as your income grows.
Get Help From a Tax Professional
Retirement account contributions are just one way of growing your financial reserves. You can also find ways to save money by lowering your tax liability with the help of a tax professional. The IRS offers deductions and credits for a variety of expenses that you’ve paid for in the previous year, and a tax professional knows how to find them.
Reducing your income through legal means helps you save money in multiple ways, but the overall benefit is that you pay less income tax on your earnings. This can come in the form of a larger refund, a refundable tax credit, or eliminating the need to pay more money for extra income tax.
In Conclusion
Creating a roadmap for your financial future will benefit you in many ways, even though it may have its challenges in the beginning. Putting in the effort also shows you the value of being responsible with your money in the short and long term. The result is one of having more than enough when you need it, more buying power in general, and you’ll always have funds in the bank to meet just about every need.
About the Author – Megan Isola
Megan Isola holds a Bachelor of Science in Hospitality and a minor in Business Marketing from Cal State University Chico. She enjoys going to concerts, trying new restaurants, and hanging out with friends.
