Financial Tips That Stand the Test of Time
Much is written about both the similarities and differences of the generations. Millennials, Gen X, baby boomers, and the greatest generation each have their own respective traits and habits, some good and some bad. And when it comes to financial planning, this is certainly no exception.
However, time has proven that there are certain financial tips that remain true regardless of age.
Save and budget. Whether it is saving for a first car or first house, creating a rainy day fund, saving for college, or saving for retirement, the habit of setting aside money will never go out of style. In fact, saving is the underlying component of many successful financial planning strategies, both short- and long-term. It might be setting aside an extra $100 a month to save for a trip or setting aside money in a 529 plan for college, but the simple act of saving is critical and requires a disciplined approach. One easy tip is to use auto deduction from a paycheck (or other source of income) so the money will never be missed. Also, be relentless in making saving a central component of your budget. Factor it in with the same weight as other critical expenses such as food, health care and housing.
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The good news is that it is never too late, or too early, to embrace the saver mentality. According to the new Allianz Life Generations Ahead study that explores the personal finance attitudes and opinions of three generations, both millennials and boomers alike appear to be embracing saving and frugality. This is particularly good news given the study also indicated that while millennials and boomers are getting better at saving, a majority of the same two generations, joined by Gen X, fear running out of money in retirement even more than death.
Live within your means. It seems pretty basic, but this can be challenging regardless of generation. It is human nature to compare oneself to others and social media has served as the ideal channel to enable FOMO, or Fear of Missing Out, thus creating a formidable roadblock to staying on track financially. While past generations may have referred to it as “keeping up with the Joneses,” the temptation remains the same. There will always be new gadgets to buy, but trying to make spending decisions that align with budget needs and financial goals is important at any stage of life. Also, stay away from accumulating too much debt, but at the same time understand that all debt is not bad. A history of some debt with prompt payments helps build a solid credit history, which is needed for larger purchases such as homes and automobiles.
Count on taxes and inflation. There is truth in the saying that “in this world nothing can be said to be certain, except death and taxes.” An updated version would include the certainty of inflation. The cost of living will almost certainly rise and consideration needs to be given for factoring in increased prices when planning for and within retirement. Keep in mind the rising cost of health care, and for those funding higher education, college tuition will likely rise as well. So having a financial strategy that ignores inflation can be a very costly mistake. And in regards to taxes, pay attention to the myriad of potential tax possibilities when planning for the future and consult with a tax professional.
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Plan ahead and be flexible. Be proactive when it comes to financial planning. While living life to the fullest and living in the moment is a philosophy that few would argue with, being proactive in planning for the future is just as important. So the reality is that it is never too early to think about retirement. In fact, the earlier the better. Investing at a young age and taking full advantage of employer 401(k) matches can help exponentially grow a nest egg. If a 401(k) is not an option, you may want to consider another long-term investment with favorable tax treatment, such as an individual retirement account. Depending on the situation, consider a traditional IRA and, if qualified, obtain a potential income tax deduction, or a Roth IRA with other benefits like tax-free qualified distributions (again, if qualified).
In addition, plan for the unexpected. While it might be easy to look at it as an easy place to cut costs, life insurance is one of the most important purchases that can be made. While not the most exciting thing to buy, life insurance has always been and will remain one of the best ways to ensure financial security for family and other loved ones. In addition, if not done already, see your attorney to update or draft your will, and ensure that your beneficiary information is continuously updated so your legacy wishes can be fulfilled.
Last, be flexible and make the time to revisit and adapt plans as necessary. For example, investment risk tolerance is likely to change dependent on life stage and/or financial needs. There will be times to be aggressive and times to be conservative, but there will always be a need to remain adaptable as the path to reaching financial goals is rarely straight and narrow.
Learn from others. Don’t be afraid to continuously learn. There is a wealth of information available online, but at the same time, do not be intimidated or afraid to ask for help. Tax and financial professionals can play an important and helpful role in providing advice and guidance. In addition, don’t rule out the possibility that your parents may have been right after all! Much can be learned from those who came before and have greater experience.
While much changes from generation to generation, much also remains the same, even in the realm of financial planning. Adopting some of these timeless tips will help ensure a bright financial future in the years to come.
Source : https://money.usnews.com