No matter your age, it’s always a good idea to consider your financial future. It’s no secret, however, that the task can feel overwhelming. There are myriad complex opportunities available and pitfalls to avoid. But taking charge of your finances doesn’t have to be as challenging as it might first appear. Here are some effective steps you can take to start building toward your financial future today.
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1. Explore Alternative Investments
Traditional saving tools like budgets and tax-deductible investment accounts are highly practical. However, they’re not always the most exciting. There are many other kinds of interesting opportunities that have a high potential for return. Just keep in mind that the barrier to entry can likewise be high.
Real estate has long been a powerful investment opportunity. There are many reasons why real estate remains desirable, from cash flow potential to tax breaks. The downside is that it can be expensive to break into. If you have the preliminary funds, though, real estate has great potential for growth and return on investment. Alternatively, real estate investment trusts (REITs) allow even smaller-scale investors to cash in on the real estate market.
Speaking of markets, right now non-fungible tokens (NFTs) and cryptocurrencies are some of the hottest ones around. Some observers will argue that they’re entirely speculative, while others claim they’re the future. No matter what you believe, the reality is that millions of dollars have already been bet and made on blockchain technologies. The crypto market could be an excellent opportunity if you’re particularly tech-savvy.
No matter what alternative investment opportunities appeal to you, there is a rich world of possibilities to explore. However, as mentioned, there can be high barriers to entry as well. So if you’re starting your investment journey from the beginning, it may be wise to consider more traditional money moves.
2. Establish Retirement Accounts
Setting up a 401(k) might not sound like the most thrilling way to spend your weekend. But it might make your future weekends even better. After all, who doesn’t like free money?
Many companies offer employment benefits that include a 401(k) with matching, and “matching” is the watchword here. What it means is that for every dollar you contribute to your 401(k), your employer also contributes one dollar. Plain and simple, this kind of account literally doubles your contributions to it, albeit usually to a limit. Once it’s invested, that money will continue to grow over time.
If you’re a single tax filer making $144,000 or less per year, you’re also eligible to consider a Roth IRA. With a 401(k) plan, you’re taxed when you make withdrawals, whereas contributions to a Roth IRA are made with after-tax dollars. On average, your income — and thus your tax bracket — will increase over time. Consequently, you’ll pay fewer taxes overall if you pay them now instead of when you withdraw funds. This benefit makes the Roth IRA particularly appealing to younger investors and those who have more potential to grow their income.
How do you decide which type of account is best for you? Good news: You can have a 401(k) and a Roth IRA at the same time! Set up automatic payments to both accounts and rest easy knowing that, every day, you’re passively investing in your future.
3. Don’t Neglect the Basics
So you’ve finally decided you want to pull the trigger and develop an investment portfolio. But where do you start? It can be hard to find cash to invest when there are essentials like groceries, cell phone bills, and insurance to pay. And with two-thirds of Americans living paycheck to paycheck, you’re not alone. This is where budgeting comes in.
Starting a budget is simple. First, spend some time tracking all of your expenses. Your monthly recurring bills, like your rent and internet, will be the easiest to identify. Groceries and other variable yet necessary expenses will be harder to track but likely more easy to adjust. Pay special attention to all those extra “inexpensive” items you might buy on a whim. You’d be surprised how quickly $5 here and there adds up.
The second and most important step to creating a budget is to clearly identify your values. This is one of the most powerful ways to create lasting habitual change within yourself. Say you determine, for example, that you are someone who values experiences more than appearances. Knowing this, you can more easily resist a designer clearance sale and instead put that money toward your next vacation.
With your revelations in mind, the third step is turning your values into practice. Keep track of your spending and set a day every few weeks or months to review and evaluate your spending. Are your purchases and investments in line with your values? If not, adjust as necessary.
While it might not be the quickest or the most glamorous money move, budgeting is the most fundamental. Of all the options listed, your spending is the one most within your control. And who knows? If you are honest about your values and expenses, you might truly achieve your investment goals.
Moving Toward Money Mindfulness
There are many powerful and effective ways to approach building your financial future. While it may initially seem daunting, it doesn’t have to be. Knowing your core values will give you a solid foundation for deciding what paths you want to take. And no matter where you are on your journey to financial health, now is always the best time to start.
