I'm sure you've heard a penny saved is a penny earned, or maybe you've heard to never rely on anyone but yourself to provide the things you want in life. While we know these things to be true, sometimes it's very easy to get caught up in the moment and make financial decisions without knowing the full value of these decisions until later in life. Often, we rely on our gut feelings or, if you have a financially open family, we go to them for advice. And sometimes we just do what makes us feel good.
Confusion and stress, which we know can be a destructive combination, often lead young people to make bad financial decisions. So as I pen this article, I do so with compassion for young people just starting out in life and maybe with some realistic advice to those seeking the American Dream and wishing to achieve financial security.
My first piece of financial advice is to acknowledge that it's practically impossible to always make the right choice because the answer of right or wrong is usually delayed. Only as time passes will you have the opportunity to look back and evaluate your decision. Second, don't get stressed out about whether you are or aren't making the correct choice. This can cause you to freeze on your decision and take the road most traveled. Third, keep emotions out of your decision-making and think long-term. With that being said, it's time to give the practical advice that we all know but sometimes need to hear from another person.
So here you are in life - you could be searching for a job, already have a good job, just graduating college, newly married, already started your family, looking at buying a home or already own a home. Wherever you are in life, important, thoughtful decisions need to be made. Unfortunately, they involve money.
We all know how to spend money because it gives us what we need at that moment. However, what we don't know how to do is manage and save money. Managing money takes discipline, and this discipline can either be taught to us or we learn it on our own. If you're fortunate enough to have solid principles taught to you from your parents, you'll probably find that making decisions is an easy process and you'll search for ways to improve your saving strategies.
Always pay yourself first by putting money aside. Start with this basic financial principle by saving to have at least six months emergency money at all times. Once you achieve this goal, continue to save, just like you did for your emergency fund, and pay off unsecured debt such as credit cards. Don't use credit cards for anything. If you have one, cut it up and pay off the balance. This will eliminate the temptation to overspend.
Now that you've given yourself some solid ground to pursue your dreams, there are some choices that may be difficult to make - how to save for your children's college, what type of wedding or honeymoon can you afford or how much money you need as a down payment for a house.
If you have kids, the first thing you should do is start saving for college. However, note that you shouldn't start that process until you've taken care of yourself first. College savings should be the last thing you save for after all other priorities are met.
Now, for the wedding and honeymoon. I say go cheap - really cheap. That means you save the money you would spend for a lavish wedding and dream honeymoon for the house you'll eventually wish to own. You'll be thankful you did. Besides, no one really remembers your wedding except for you.
Your goal should be to save $20,000 minimum to get a nice starter house in central Pennsylvania. Save that wedding money or tell your parents that you'd rather have money for a house than a lavish wedding. You can always take the dream honeymoon for your 10-year anniversary when it will be so much more meaningful. I'd also like to mention that marrying a spendthrift or someone with poor money management skills will make the road to financial security difficult.
Now that you have your family started and have your first home, it's time to start protecting what you've built. Consider purchasing life insurance, to replace lost income if you pass away early, and disability insurance, to replace income if you cannot work. Once you've obtained this protection and adhered to your budget, you might have extra money to save for the long term such as retirement or some major purchase. Only risk money through investing of which you can afford to lose, as too many young people want to invest before their foundation is built.
Last but not least, consider working with a financial planner - one who doesn't get paid by selling investments or products. Rather, choose an hourly financial planner who can become your coach and mentor to help you achieve your goals.