10 Tips When Planning For The Future

Post by Carly on August 25, 2014 · Under Hints and Tips, News · Comments Off on 10 Tips When Planning For The Future 

When you are young the last thing on your mind is worrying about whether you are going to be financially secure enough to enjoy retirement. When you are under 30, there are still a ton of firsts that need to happen like starting a family, buying a house or purchasing a car. This means it is nearly impossible to think about the future let alone worry about it. One common myth about retirement planning is that it is an exercise in self deprivation. This need not be the case and attaining financial security is a worthwhile goal because insecurity can be a serious source of stress.

So how is it possible to obtain financial security without sacrificing short term goals, here are 10 tips on how to plan for the future.

1. Have Fun

When you are young you really should be enjoying yourself because there is lots of time in the future to be miserable. Living a happy and successful life is about maintaining a balance between spending time with friends and family and work. You also need to achieve some kind of balance between today’s lifestyle and your future lifestyle. It simply does not work to live each day as our last and this means we need to make a decision between what we spend in the present and what we put away for the future. Figuring out this balance is the important first step towards achieving financial security.

2. Your Most Important Financial Asset Is Yourself

The greatest asset you have is your skills and knowledge. The most important factor in achieving financial independence is your job and future career and the value of your future earnings is likely to eclipse any investments or savings you may have for most of your career.

You need to see yourself as a financial asset and this means making investments in that asset that will produce returns in the future. You should seek to increase your value by continuously enhancing your knowledge and skills. Improving your career prospects can have a much more meaningful impact on your financial security compared to trying to save more by tightening your belt.

3. Become a Planner, Not a Saver

The research indicates people who plan for the future end up being wealthier than those who fail to do so. People who are successful tend to be goal oriented and develop a plan to achieve their goals. One example of this is setting a goal to ensure your student debt is paid off within two years which is much more likely to succeed compared to simply stating you wish to pay off your student loans and not establishing a time frame

This means you need to be a planner and by that we mean you should establish goals and develop a plan of action in order to achieve them.

4. Long-Term Goals Will Take Care of Themselves If You Set Short-Term Goals

Life is very uncertain and this means that plenty of things can change between the present and 30 years in the future. This makes the task of planning into the distant future rather daunting and for many young investors it can be an exercise in futility.

Instead of focusing on the long term, it is more advisable to set a number of smaller short term goals such as paying of credit card debt, or contributing to your super through a voluntary contribution every month. If you want to get ahead in your career, it is important to set short term goals that will help you do this. The goals should be precise and measurable because you cannot win any race when you cannot see the finish line.

5. Planning For Retirement: Fuggetaboutit?

When you just finish college the last thing on your mind is planning for the future. If you are in this situation then the best thing you can do is fuggetaboutit. So long as you follow the other tips you are going to be better prepared in the short term and more financially secure both in the present and distant future as well.

You should take a few steps like increasing contributions to your superfund and take advantage of compounding which works in your favour and makes it much easier to achieve your goal. The most important thing you can do is develop the habit of saving and the rest will take care of itself

6. Make Sure Your Lifestyle Costs Is Lower Than Your Income Growth

Plenty of fresh graduates find that after the first two years of working, they have excess cash flow because they are still used to their more frugal spending habits from their college days. Instead of using that additional income to live a more luxurious lifestyle or buy new toys, you should use the cash to pay off debt or add to your savings. As you progress in your career and your salary should increase. If your lifestyle costs lags your income growth you will always have extra cash flow which can be used for a variety of financial goals ranging from making investments to saving for a home.

The concept that gets people in trouble is a sense of entitlement to a standard of living that they cannot afford. If you ensure the way you live costs less than you earn there will be no reason to make cut backs in order to save cash.

The good life should be a reward for your hard work, good fortune and successful planning, not something that you are entitled to.

7. Become Financially Literate

It’s one thing to make money however making it grow is another thing all together. Managing your finances and investing for the future are lifelong endeavors. If you want to achieve your financial goals it is important to make sound financial and investment decisions. This means the more knowledge and experience you have with financial matters the fewer mistakes you are likely to make.Research suggests that those people who are financially literate end up being wealthier than those who are not.

Research has shown that people who are financially literate end up with more wealth than those who are not. There is a strong monetary incentive for becoming financially sophisticated. Taking the time and effort to become knowledgeable in the areas of personal finance and investing will pay off throughout your life.

8. Take Calculated Risks and Seize the Opportunities

When you are young, it can be prudent to take calculated risks. You are going to make a mistake along the way but they are lessons you learn in life because you tend to learn more from your mistakes than from your successes. The other advantage that comes from taking risks young is you can recover faster because you have much more time to recover.

One example of a calculated risk might be moving to a new city or going back to college for more training or taking a lower paying job at a different company where the upside potential is greater. The point is, that when you are young, you can afford to take risk and as people get older and have family responsibilities they tend to play it safe and cannot capitalize on risky opportunities.

9. Borrow Money To Make Investments Never to Finance a Lifestyle

Rule number one in finance is never borrow to finance a lifestyle you cannot afford. Constant borrowing means you cannot invest and the interest payments for financing your lifestyle further increases its cost. You should only ever borrow to make an investment where the gain in the value of investment is likely to exceed the borrowing costs. This could be investing in stocks or bonds, or paying for an MBA or buying a house. In all these cases, the borrowing offers the kind of leverage you need to achieve your financial goals faster.
10. Take Advantage of Financial Freebies

Few things in life are ever free. You could take advantage of your superfund and take advantage of the free contributions made by your employer by making sure you contribute the maximum of what your company will match There is also an incentive to invest in stocks because of favorable tax treatment on capital gains and dividend income.

All of us strive for financial independence. This goal is not necessarily easy to achieve but it can be done by understanding your priorities and setting achievable goals and then taking the required steps to reach those goals.

Nothing within the comparedinkum.com.au website is, or shall be deemed to constitute, financial or other advice or a recommendation to purchase any product or service. Any and all information provided within the website is for general information purposes only. Neither do we claim to represent the whole market.