According to one study done in 2019, 22% of adults have less than $5,000 saved for retirement.
If you’re in that category and want to learn how to be smart with money, you’ve come to the right place.
There are many financially smart tips out there, so keep reading to find out what some of the best ones are!
Figure Out How to Save
First, you have to learn how to save. You don’t have to start saving thousands of dollars at first. Instead, save a little bit at a time until you get the hang of it.
Plus, your salary, bills, or lifestyle may not allow you to save much right now, but it’s a good habit to start.
If you start saving something, then you’ll slowly have an emergency fund or an investment account that you can have for the long run.
You also need to be tracking your spending. You can do this by making a personal budget.
When you have a better idea of where your money is going and how much is coming, you’ll be able to make better financial decisions. It can be hard at first, but this is a great way of helping you spend intuitively.
To start with, don’t set a budget that limits what you spend. Wait a few months and just create a spreadsheet to track how much you’re spending in each category. Once you have a good estimate of where your money is going, then you can start limiting money and figuring out what you can afford.
You should make different categories for rent, utilities, fitness, clothing, debt, personal hygiene, random, social expenses, and anything else. Also, make sure that you list all of the income that is coming in each month so you can track where it’s going.
Build a Good Credit Score
One thing that you can do that will save you money, in the long run, is to build up a good credit score. This will help you qualify for loans from the best financial products, like loans or credit cards.
Plus, you’ll also get better terms, which can save you thousands in interest rates down the road.
To build a good credit score, you need to start establishing credit. You can be an authorized user on someone else’s account, or you can open your own. When you do have your own open, make sure that you pay your bills on time and in full, don’t open too many credit cards, and pay back any loans you have.
Set Financial Goals
You need to decide where you want to be financially and why. If you can figure out why, you’ll be more motivated to actually save money and be financially savvy.
Maybe your goal is to create a college fund for your kid. Or maybe you want to plan for retirement or pay off all of your student loan debt. Maybe you just want to have enough money in the savings account to not worry about each month.
Regardless of what your plan is, follow these steps to help you achieve them and start saving money.
Open a Roth IRA
With a Roth IRA, you’ll be able to put $6,000 in each year. You won’t be able to touch this money until you’re retired (without incurring heavy penalties), so make sure that this isn’t part of your emergency fund.
However, you can invest this money into stocks and bonds that will help give you a higher rate of return than with most savings account. The money you’re putting in is already pre-taxed, so you won’t have to worry about paying taxes unless you take the money out early.
Use a 401(k)
If you have the option to contribute to a 401(k) through your employer, make sure you do it! Most employers will also match the contributions, so it’s extra free money into your 401(k) each month.
You won’t be able to take this money out until you’re retired, but it’s a great way to have some extra money for your retirement fund. Don’t make the mistake of waiting too long to contribute to it.
Create an Emergency Fund
If you’re young, set aside some money from an emergency fund as well. You can use this to cover any costs that come up out of nowhere, like medical bills or car repairs. This will help you avoid taking out a loan and going into debt, which will cost you more money in interest rates later on.
When you set up your emergency fund, keep it in a savings account that will also make you money while it sits there. These accounts will let you take out money up to six times a month without incurring a penalty. This can help to reduce the temptation for withdrawing it during a non-emergency.
Most experts recommend keeping at least three to six months worth of expenses in your fund. However, to get there, it’s okay to start small. Even if you save $3 a day, you’ll have $1,000 in there after a year. While it may not be enough, it’s still a good cushion that will help.
Discover More Ways on How to Be Smart With Money
These are only a few ways on how to be smart with money, but there are many more things you can try.
Being financially savvy can be hard, but we’re here to help you out.
If you’re looking for more financial advice, check out our website to find other great articles!