Even though we don’t like to talk about it, our finances and money management habits are a primary way to ensure economic security - or the lack of it - for ourselves, our families, and retirement. Let’s look at the time-honored practices of good money management and how to use them effectively to create a bright and comfortable financial future.
Many people enjoy spending money, and there’s nothing wrong with that, as long as you follow a few rules to be sure you don’t run out of money and run into trouble.
- Spend less money than you earn – It’s easy to run a deficit each month if you fail to keep track of spending. Purchase only what you can afford with cash and eliminate unnecessary expenses.
- Budget wisely – Creating a budget based on your income and your goals is essential to prevent developing debt that keeps growing. Stick with the budget and stop spending when the money runs out.
If you create and follow your budget carefully, you should have a margin of extra cash on hand after paying all your bills and monthly expenses. This extra cash should go toward building a cash reserve in savings each month.
- Emergency funds – As part of your budget, anticipate what cash you will have to save. Use those figures to add to your emergency fund for unexpected expenses and then enough additional to cover a few months of payments in the event you lose your income.
- Larger purchases – Once you have the emergency fund set up, you can start budgeting a percentage of your income to go into a savings account for future purchases such as a car, furniture, vacations, college, or the down payment for a home.
- Avoid the mistaken idea that an annual tax refund is a great way to "save."
It is never too late to start investing, and we encourage clients to begin an investing habit as early in their careers as possible. Even small contributions made regularly can grow in ways that “savings” do not. When it comes to investing, you will need to choose wise ways to make your money work for you without undue risk of losing what you’ve already worked hard to accumulate.
- Employer matches - Take advantage of these when they are offered, as this is essentially “free money” and can build over time into future retirement income.
- Use tax savings -- Smart tax strategies can free up money to convert into assets that build wealth.
- Diversify – The safest way to ensure you have the possibility of high returns, as well as a safety net, is to mix high, medium, and low-risk investments, along with tax-advantaged investments through your workplace and insurance programs.
- Financial advisors – Even if you pay close attention to trends and pricing, you should have a financial advisor who can help you understand changes in government regulations and how investments interact or behave under various conditions.
Generosity and sharing are part of living a healthy, well-balanced life. Along with personal satisfaction and the experience of contributing to a greater good, there are often tax advantages to charitable giving.
- Budget for giving – There are tax benefits of regular giving to your favorite charity that can help you or your company reduce taxable income. If you plan to do this, make sure to include it in your budget. If you want flexibility for the occasional spontaneous donation, account for that as well.
- Do your research – Make sure that your charity is tax-deductible and research how they spend what they take in. Check reputations and choose organizations with a mission that fits your values and beliefs.
Myrick CPA cares about your personal and business finances. Creating custom budgeting, saving, investing, and giving plans can help you reach your financial goals. Contact us for a consultation today.