Having money smarts includes being debt-free and saving no less than 15% for retirement. Each person is in a different place with their finances and money smarts. What is right for you, may not be right for someone else. Decide what your goals are. Take a good look at your financial situation and decide what you need to do to get going on being money smart and reaching your goals.
As I see it, there are 8 basic money smart ideas to start with. I’ll cover 4 here and 4 more on the next post.
#1 Contribute to the 401K plan at work up to the amount your company matches. If your work matches dollar for dollar–that’s great. If they match 50 cents to every dollar you put in, that’s still great! If you are not utilizing a 401K at your place of work where there is some matching, you are leaving money on the table. That’s free money! Don’t pass up free money, especially from ‘the man’. Since most 401K plans have high fees, I suggest you only contribute up to the match.
#2 Build up a savings fund. Start saving money outside of your retirement account. Others call this savings an ’emergency fund’ and recommend it be 3 to 6 months of earnings. This can be your long-term goal. As a short term goal, save some each month and shot for $1000 in savings while you get out of debt.
I started building wealth by saving money at a credit union. I realized that one of my primary goals was to feel secure. As I built up my savings or emergency fund, I started to feel more and more secure. This empowered me to do more. Save more, be more frugal and have more and more faith in my ability to build my wealth and feel even more secure. I liked seeing my savings account balance grow.
# 3 Get out of debt. I know, easier said than done. Yet you can do it. Create a goal and a plan to follow. There are numerous websites devoted to sharing ideas on how to get out of debt. Here are a couple: How I Crushed my Student Debt and Fixing Money Mistakes If you’re having an income crisis there a few good ideas at Club Thrifty/Income Crisis.
I’m not talking about your mortgage or car payment debt. I’m talking about getting out of credit card debt, loans, student loans, and any other money you owe to other people, including family.
#4 Live frugally. Being frugal means living below your means. I don’t think a budget is the only way to manage your finances. I suggest you make a decision to be frugal in all areas of your life. This might be the most difficult thing to do because it means changing how you use your money and how you live.
There are hundreds of ways to live frugally that I’ll talk about in future blog posts. Right now, stop all unnecessary spending. Stop shopping, except for food at a discount food market, such as ALDI. Bring your lunch to work, make your own coffee, Stop eating out…take a look at your spending and eliminate non-essentials. Before making a purchase ask yourself one simple question: But what if I don’t?
Give being frugal a try. No one is saying you have to commit to a lifetime of frugality, but if you have debt and/or only a little retirement savings, being frugal will help you amass the money you need to get out of debt and build your savings.
It’s not how much you make, it’s how much you save that counts.