This post is from guest author Melissa Davidson. You can find her on Twitter @madtris.
Not everyone is good at managing their money. It’s a skill we aren’t necessarily taught in school, yet it’s something that has a big impact on our lives as we become adults. Financial freedom is about making good choices and being patient over time.
To help guide you in the right direction, here are a few simple steps to take if you want to be richer in the long run:
Invest in your 401k
Employers who offer 401[k]s encourage employees to take advantage of this benefit. It could be especially lucrative for Millennials just starting out in the workforce. Those who started investing in the stock market at the age of 25 and plan to retire at 67 could actually become millionaires by taking advantage of a 401[k], according to Fidelity Investments. It’s never too late in life to start your retirement savings, however.
Put merchandise on layaway instead of on credit cards
If you’re thinking ahead to Christmas or birthdays, layaway is a great option, especially if you want to take advantage of sales. If you’re at Target, for example, you can reserve items (without having to pay the full cost upfront) and make payments until they’re paid in full. Layaway is a debt-free shopping solution that isn’t necessarily on some people’s radars. Think of how much you could save instead of paying high monthly interest on your credit cards.
Pay off your credit cards
Sometimes it’s unavoidable to use credit cards, especially if you need to make big purchases such as: car repairs, new tires, a new water heater or a new roof. Life happens.
You can tackle those pesky credit cards by paying off the one with the highest interest rate first. It is the one that is costing you the most money, and likely taking you the longest to pay off. Call your credit card company and request a lower interest rate. If you tell them you’ve been offered a lower rate from another company, you might be able to put yourself in a negotiating situation.
Also, when you can, pay more than the monthly minimum payment. Otherwise, you’re often just paying the interest rate and not making a dent in your actual debt. You might find that a career in accounting, or at least an accounting 101 class, would be beneficial.
Save on costs by monitoring your energy usage
If you’re just starting out as a new renter, you may need a few tips on how to save on your electricity bill. You already know that running the air conditioning all day is not a good move. First Choice Power recommends setting the thermostat to 78 degrees in the summer, even in warmer climates, because for every degree you lower the thermostat you increase energy usage from 6 to 8 percent. For example, if your thermostat is set at 74 degrees, instead of 78, you could potentially be losing 24 percent a month in energy costs. An additional tip would be to change your air filters every three months, often a step we forget to do. Dirty air filters cause the AC system to work harder.
Follow a budget & save
If you’re spending less than you make, congratulations – you’re on the right track.
The major sources of overspending include eating out too much, buying electronics, gadgets and clothes. While you don’t need to track where every penny goes, it’s good to be aware of what you spend in a week as a starting place of where to save, according to Forbes. Rather than spending any leftover cash at the end of the month, it’s much wiser to put that money into a savings account and not touch it. Buying a new car that you can’t afford is not good budgeting. If you save, though, maybe in two years you’ll have the funds to buy it.
In the book “All Your Worth” by Senator Elizabeth Warren, she outlines a simple plan in which 50 percent of income goes to necessities, 20 percent into long-term savings and 30 percent into lifestyle choices.
Millionaires don’t allow themselves to go into debt , are not impulsive spenders, and tend to think differently than the average Joe. However, everyone can learn how to manage their money by making wise financial decisions.