Financial Management is not an academic subject. No one gets exam marks to indicate how they are progressing with the subject. It is a matter of making good decisions and learning from any mistakes which hopefully are not too costly. The USA consumer finance statistics are fairly disturbing. There is too much credit card debt and certainly insufficient retirement savings in society. Some people must be stressed every time they open their credit card statement or read about the Social Security System’s problems and the fact that an insufficient number of people are saving enough for a comfortable retirement.
The sooner you get into the habit of saving and spending sensibly the better your chances of living a trouble-free future. It does not make sense to delay anything because you are still fairly young and you have time to put your affairs in order.
How are you going to make financial decisions if you do not have a budget that identifies how much you earn each month and what you are spending? The answer is that you will find it difficult. No business operates without a proper financial strategy; budget, forecast and cash flow. Decisions are made based on facts, not guesswork. That budget is just as relevant for you especially if you have got yourself in some financial difficulty.
Your personal budget will help you steer through life with your financial affairs in order. Not only will it identify where you are carrying too much debt but it should also point you towards where you can make savings and where you should put the money.
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Credit cards are convenient but dangerous. If you are carrying significant credit card balances you are paying a high rate of interest and frankly wasting money. You should look to getting rid of those balances with a personal loans repayable by monthly installments the best way to do it. Not only will it remove a burden but it will also allow you to put that installment figure into the budget.
Social Security was never designed to fund a comfortable retirement. It can only be support but it is a system that is in trouble. Without significant extra funding the benefits it will pay out will reduce by as much as 25%. There is no guarantee that Congress will ever approve such a move.
Guaranteed retirement benefits from employers are a thing of the past. Today’s plan is a 401(k) which requires employers to contribute up to a maximum amount as long as you yourself do so. It is something you should open as a matter of urgency even though it is entirely your responsibility how it performs. During the recession performance was inevitably poor but that need not be the case in the future. There are some tips that will help you if you open a 401(k):
- You should look to start at 3% as normal but to increase your contribution as soon as you can. That will be possible if you address your debts to create surplus. An extra 1% a year might be a good aim.
- Make sure you take all the ‘’free money’’ available from your employer.
- Be aware of any conditions that your employer may put on the contributions. It may be your agreeing to work for that employer for a minimum period.
- You are permitted to save a maximum of $18,000 annually until you are 50 and then $24,000 subsequently. That must be your aim.
- If you receive any bonuses at work you should think very seriously about investing in your future rather than spending them.
It is obvious from all the statistics that there are huge problems in American society involving debt and lack of saving. It is no comfort for an individual to know that others have similar problems. You need to act for yourself to improve your future prospects. There are far too many stories of retired people being unable to live in comfort, never mind have a holiday or treating themselves. You do not want to be part of another story but you will be if you do not take control of your finances and get them in order with immediate effect.