By Brian Larsen | Thoughts on Innovation
Achieving financial freedom is a common goal most individuals strive to reach.
Possessing this type of security presents a number of opportunities like being able to afford an ideal lifestyle, knowing how to properly save and invest, and retiring comfortably.
In today’s economy, it may seem difficult to build wealth, especially because of soaring inflation rates, record high housing costs and staggering amounts of debt.
By establishing important financial habits early on in life, you have the chance to overcome these challenges and begin your journey to preserving and growing your assets. The earlier you start, the more you can learn and earn.
One of the first steps to reaching financial success is crafting a thorough financial plan. According to Charles Schwab’s 2021 Modern Wealth Survey, only 33% of Americans have a written financial plan. Of the rest, almost half said they didn’t have enough money to make a plan worthwhile, and others said it was too complicated or they didn’t have time to develop one.
These surprising survey results reveal that very few individuals have an understanding of the best budgeting practices to achieve financial growth. In order to create a personal financial plan, you need to first start by setting financial goals, possessing a basic understanding of finances and learning how to save and budget. Setting realistic intentions and creating an in-depth blueprint of your goals will provide you with a clear layout for managing and growing your finances.
Implementing these skills into your life will allow you to create your own, personalized budgeting plan catered to your needs and lifestyle. If you are spending your entire income and hardly ever have money to save or invest, this would be an important time to discover the ways in which you can cut back. Getting into the habit of spending less than you earn and saving the difference will elevate you to the next level in terms of building wealth.
Tools such as the 50/30/20 budget plan are useful when trying to save and manage your money smartly. This rule calls for dividing your monthly income into different categories based on a percentage. After taxes, income is divided into 50% on essential needs, 30% on wants and 20% on paying off debt or setting aside funds for emergencies. This is an important tool to implement into your life to give you a better understanding of your finances and where you may need to make adjustments.
— Brian Larsen
Sticking to your budget and reviewing it on a monthly basis will ensure that all your bills are paid, and you are on the right track. Taking the time to create a solidified plan in order to be in control of your expenses will save you a tremendous amount of money, time and effort for future opportunities and curb your spending temptations.
Another rule of thumb is to follow the three S’s: save, share, and spend, which provides a timeline of how you should manage your money. This allows you to create an outline where you can set a number for how much you want to put away for each category.
Additionally, creating a savings account is a bonus when trying to be on top of finances. Not only are savings accounts easy to open, but they are also one of the most secure ways to invest and save your money. It is an excellent way to safely store funds for big purchases, emergencies or even that vacation you have always dreamed of. Checking and savings accounts are separate, so using a savings account may enable you to think twice about impulsive purchases.
If you are a parent, you can be a key figure in exposing your child to financial literacy at an early age. Opening a savings account in their name and having them make deposits or withdrawals introduces them to the real world and teaches them valuable skills. When they become teenagers, it is also a great idea to open a checking account and teach them how to balance a check book — even if it’s just a few dollars. It’s highly impactful as they learn how to balance their money and not spend more than they have. These tools will provide a much-needed financial foundation that will better enable and encourage our children to save and be responsible with their finances.
Integrating these money-saving strategies into your life will assist you with developing strong financial habits that will greatly benefit you in the future.
Editor’s note: Mr. Larsen is vice president, NW Arizona Retail Division Manager for WaFd Bank.
