We plan our education, careers and our families yet very few of us plan our money. To prevent financial hardship, it is important to follow a few basic steps. Budgeting, getting out of debt and saving are the three keys to financial success and independence. It is important to learn how to manage your money early on.
Your Budget
No matter how young you are or how little you make, it is important to start budgeting immediately. You want to learn quickly how to manage your money and spend less than you make. The purpose of a budget is to decide where you want to spend your income. It allows you to allocate a certain potion of money to a particular category. This is the first step in controlling you finances and achieving your goals.
Debt
There are times in our lives where we cannot help but go into debt. Student loans, buying a car, running up a credit card all create debt. Most of us end up paying exorbitant amounts in interest to fund this debt. The key is to allow for principal payoff in your budget to get out of debt as quickly as possible. You can be using all the money that goes to interest towards saving for retirement.
Savings
The next step after getting out of debt is to start saving your money for emergencies that might arise and for retirement. The first step is to save for pending emergencies. Plan on putting away at minimum $5,000 to $10,000 for emergencies. Once you have that nest egg, the next step is to start investing for retirement. IRAs, investment accounts, and CDs are all ways to save money. Do not put all your eggs in one basket. Plan on diversifying your investment plan as a means of protection. Other investments can include real estate, precious metals, art or coins.
By following these three basic steps on how to manage your money you will find the financial freedom that many seek and few find. These three strategies will take years to implement and achieve so do not expect immediate results. You are planning for the long term.