Earning a comfy salary often lulls people into overlooking their financial future. Unfortunately, only when their earning years have peaked do people realize that the annual salary they are receiving isn’t permanent. Avoid this situation by taking command of your finances and laying the bricks to a sound financial future. Here’s seven tips on how to manage your salary wisely that you can start practicing today:
Figure Out How Much You Need
Before you can save money, you’ll have to pay for basic needs, such as monthly rent, utility bills, insurance, groceries, car upkeep, etc. Construct a detailed list of expenses that’s divided into annual, quarterly, and monthly categories. Make sure to include everything that you spend cash on, whether it’s a necessity or a desire. Don’t underestimate the small ticket items. Even a $10 monthly subscription to a media streaming provider can add up to $120 a year.
Plan Your Trips to the Grocery
In fact, plan any trip that involves you spending cash, whether it’s a trip to the grocery store or a night out with friends at a fancy restaurant. Planning is a commonly underestimated habit; it’s too simple and doesn’t have as much weight as other more sophisticated ways of managing money, like automated 401(k) contributions or asset management software. Nonetheless, practicing the habit of planning your trips can save you a lot of money in the long run. Have a schedule, whether it’s weekly or biweekly, and a detailed list of items you need to restock in.
Consider the 50/20/30 Rule
Rather than have to divide your budget into 20 different categories, the 50/20/30 guideline divides everything into three easy-to-follow categories, namely Fixed Costs, Financial Goals, and Flexible Spending. Fixed costs pertain to bills and expenses that recur on a monthly basis. Financial goals, on the other hand, are costs that help towards building your financial future, such as retirement and emergency funds. Last but not least, flexible spending pertains to day-to-day expenses that vary in amount and frequency, such as gas and eating out. Following this guideline, you should direct 50 percent to fixed costs, 20 percent to financial goals, and 30 percent in flexible spending.
Take Advantage of IRAs
While individual retirement accounts aren’t a budget saver, they do help you grow your savings through better tax treatment. Different types of IRAs are available including Roth, Rollover, and Traditional IRA. With Roth IRAs, you make after-tax contributions and so you withdraw it tax-free when you retire. Rollover accounts, such as 401(k), handle cash that rolls over from certain types of retirement account. In a traditional IRA, you make contributions with cash that could be deducted to your taxes. Talk to your employer or HR representative about ways on how to manage your salary wisely with retirement accounts.
Be an Active Investor
Investing your extra cash in stocks and currencies is another way to boost your salary without having to work longer. Online forex trading offers opportunities to make short-term gains from the ups and downs of currency pair prices.
Pay Off Debt
Interest accrued on outstanding debt, such as credit cards and mortgages, can cripple your personal finances. Pay them off as soon as possible. If you borrowed money to invest or start a business, make sure to pay the debt off as soon as you start generating revenue. Use an investment loan repayments calculator to see how much you should expect to pay in interest over a set period of time. If you can repay the loan earlier than the agreed upon terms, make sure to exercise that option.
Set Financial Milestones
Nobody wants to pay rent forever. Set financial milestones including first home buying and investing in higher education. Continuously learning and adding on to your skill set can boost your earning potential. Financial milestones help validate that you are on the right track and that you are actually increasing your net worth over time.
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