We are currently facing tough economic times. We get bombarded by overwhelming confirmation of rising debt and unemployment when flipping through the pages of newspapers, watching the news over television or listening to the news on radio every day. Governments all over the world are facing challenging times in their quest to address the country's economic problems. People are extending their retirements due to zero or insufficient savings. And more bad news seems to be added by the various media daily!
What can you do when confronted with such tough times? You can’t control what the world will become, but you certainly can control how you manage your finances. Hence, taking action to secure your financial future should become one of your top priorities in life. While money doesn’t grow on trees, it can certainly grow if you save and invest prudently. Saving and investing are keys to growing your wealth in order to ensure your future financial success.
There are 3 essential steps to secure your financial future:
1. Begin saving on a regular basis
Set aside what you can afford regularly for saving. Yes, you need to start saving immediately even before you pay off your debts. You’ll be amazed how much positive psychological impact it will have on you when you see your savings grow over time. You may want to instruct the bank to automatically deduct a comfortable amount from your paycheck every month and deposit it into your savings account. It is also prudent to put aside an amount of savings as emergency fund. A general rule of thumb is to have a sum of money that covers a minimum of six month’s essential expenses (such as food, transport, utilities, etc.) where you can access in times of emergency. Never touch this emergency fund at any time unless it’s really an emergency!
2. Pay off all high interest consumer debts
You need to pay off all your consumer debts as quickly as possible, especially your outstanding credit card bills. Credit card companies charge exorbitant interest rate of up to 24% per annum so never pay just the minimum sum. Make it a habit to pay your credit card bills in full every month. It doesn’t make sense that you’re still paying for that restaurant meal consumed months ago, does it? If you can’t pay off all your current credit card debts, pay as much as you can afford. Don’t incur any new debt with your credit cards. Keep your credits cards at home until all outstanding amounts owing to the credit card companies are settled.
3. Start investing your excess money once all consumer debts are paid off
While the need for having a cash cushion can’t be stressed enough, the problem is that many people hold much more cash than is needed. Though your money in the bank savings account is generally safe with very little risk, the interest paid by the bank is also very low. The opportunity cost of holding cash is high since you’ll miss out on the chance to invest the money for higher returns. It won’t make financial sense to have all your money kept in the bank where the interest earned doesn’t even cover inflation most of the time. Hence, your money in the bank will lose value over time if you don’t invest it to earn a higher rate of return. Investing in properties, stocks, bonds and other financial and insurance products yield significantly higher returns. In addition, investing in certain financial products can even provide you with tax benefits. Why let the tax man take more of your money than you need to?
Exercise financial prudence and take time to understand the various investment vehicles before embarking on any investments. While all investments carry some risks, they become risky only if you don’t understand them enough. The key is to manage investment risks well rather than to completely avoid investing. It’s even riskier not to invest at all! Warren Buffet simply puts it, “Risk comes from not knowing what you’re doing.” So, start taking actions to secure your financial future today.
Assess Your Financial Health Using the Personal Finance Score
Assets and Liabilities - Do You Really Know the Difference?
How to Get Out of Debt in 3 Simple Steps