The key to financial responsibility is living your life so as to accumulate sufficient assets and wealth to achieve your life goals. Money doesn’t buy happiness but it does provide the freedom to live your life as you please.
- Live your life below your means – if you can afford a Porche, buy a Toyota. When you get a raise don’t increase your lifestyle to that level – try to save it. Think about every purchase and whether the money being spent is really necessary.
- Have savings at least equal to nine months to one years’ expenses to cover emergencies or unforeseen expenses.
- Be aware of where your money goes on a day-to-day and month-to-month basis. Have a budget and stick to it. Be aware of how much of your available money is going to luxuries like eating out or incidentals like expensive Starbucks coffee. Save as large a percentage of your income each month as possible. Take pleasure from watching your savings grow instead of from showing others how much stuff you can acquire.
- The earlier in your life you begin to save and invest the easier it is to accumulate greater wealth. If you invest small amounts beginning at a young age and reinvest the earnings from those investments over 20 or 30 years, the power of compounding can make you quite wealthy.
- If you have a 401(k) plan available through your work, sign up to contribute an amount so that you get the most you can get in matching funds from your employer but no more. Above that amount, you should save as much as you can under the tax laws into a Roth IRA plan if you are eligible. After that, any funds that you can save should be put into an account in a low-cost brokerage account with a company like Fidelity Investments, Vanguard Group, Charles Schwabb or the like.
- With the money you have saved, unless you are going to need it in the next five years for things like buying a house or college tuition, invest those funds in a low-cost exchange-traded fund or mutual fund that tracks the Standard & Poors 500 stock index. Reinvest any dividends you realize from those investments and keep investing whether the market goes up or down. At times that the market is down, you get the opportunity to buy at a lower price. Remember you’re in it for the long term. Never take a ‘hot stock tip’ from family or friends. Any investment that sounds too good to be true and is going to give you enormous returns, in all likelihood will result in you losing money. In the game of investing slow and steady usually wins the race. Beware of investment advisors who are in it for their interest and not yours. No one cares more about your money than you do – don’t assume that some financial advisor is really looking out for your interests.
- If you are married and/or have children make certain to have a term life insurance policy for you and your spouse in a large enough amount so that if the unthinkable occurs your surviving spouse and children will be able to continue to live and thrive. Life insurance should never be considered an investment – stay away from whole life policies and annuities that are expensive, give big commissions to the salesperson and provide few benefits to you. A term life insurance when you are young and healthy will give you the protection you need at a low cost.
- Avoid incurring debt. Other than a mortgage on your residence and perhaps a car loan, carrying debt will hurt your financial condition.
- Do not lease a car. Buy your car, with a car loan if you must over a maximum three or four-year term. Then keep that car for as long as the car keeps running reliably. Hopefully, you will have several years after the car is paid off where that money can be saved.
- Never charge anything on a credit card unless you have the funds to pay the full amount when the bill comes in. Never pay interest or fees on your credit card. Paying the minimum amount per month rather than the full amount can double the cost of your purchase.
- Never be afraid or too shy to ask service providers to waive fees or lower your costs. Many companies give their personnel the freedom to lower costs to keep customers. If you don’t ask you don’t get. The worst case is that someone says no, but every amount you can save is money in your pocket.