Keeping up with personal financial matters can be an intimidating prospect, especially for those who may lack training and confidence managing money. Fortunately, time and experience give young money managers the tools to learn and execute sensible financial moves. And though the task may appear complex, successful personal financial management is based upon a few straightforward practices.
Individual financial strategies are drafted according to personal income, monetary goals, outstanding debt, and future earning potential. Though it is hard to forecast financial conditions years down the road, beginning to plan at a young age sets the stage for financial health and security. For the best outcomes, use three important principles to guide your financial development.
1. Educate Yourself about Money Matters
Although mathematics and other related subjects are part of a child’s core educational curriculum, courses about personal financial management are typically not included during primary or secondary education. As a result, even high school graduates have little exposure to cash flow management, as they move-on to college or the workforce.
Each successful interaction furnishes a learning opportunity, so young people build financial savvy over time, alongside experience. And while the approach may ultimately provide a well-rounded toolkit for managing money, hard lessons can be avoided with advance preparation. If you are considering a loan, for example, use Web-based resources to compare interest rates and terms – ensuring the best value for your financing needs. If post-secondary education is on the horizon, explore financial aid alternatives to make the most of your college budget. And when your best financial move is not immediately clear, learn to seek help or find answers, before taking ill-advised steps.
2. Protect Your Credit Score
From your earliest financial interactions forward, credit reporting agencies are at work compiling data about your financial behavior. The record is used by creditors to assess risk, helping lenders decide whether or not you qualify for a loan or credit card. And credit reporting is not reserved for banks and credit unions, even mobile phone providers and utility companies review credit histories before opening new accounts.
With limited history on record to prove creditworthiness, it is especially important for young people to make the most of each credit building opportunity. As you begin to establish a positive credit history, use the following rules to stay on track:
Use Credit Sparingly – Access to credit is a privilege, which can be quickly undermined by reckless financial behavior. While it is a good idea to establish a pattern of timely repayment, too much activity on credit cards can work against you. For the best outcomes, start slowly, by opening a store card and single major credit card. Do not run these balances to the limit. Instead, charge a few items and repay your card balance, in-full, for at least a few months.
Pay Timely – Failure to pay debts on time has drastic credit consequences. A creditor may overlook a single late payment or provide a grace period for payback, but delinquency and default will eventually catch-up with your credit score – resulting in hard to repair damage.
Maintain a Proactive Approach – Protecting your credit references is a proactive undertaking. For the best results, know your score and tune-in to life changes that may impact your credit rating. If cash flow problems do set-in, address difficulties head-on with creditors, before your accounts are in arrears.
3. Plan Early for Retirement
Although leaving the workforce may be the furthest thing from your mind as you make your financial mark on the job; it is ever too early to begin preparing for retirement. The sooner your retirement plan is set in motion, the more time you’ll have to accumulate resources. And if there is a downturn along the way, preparing for retirement at a young age leaves more time for you to recover from temporary setbacks.
Savings and investments serve as vital financial resources during retirement, so growing balances during your working years is an essential step toward financial security. In addition to money you personally set-aside, it is important to take full advantage of employer-sponsored retirement benefits. A 401K match or pension program, for instance, is part of your compensation package, so it should be maximized for your future benefit.
Mastering personal finance takes time, and even then; unanticipated financial pressure can arise out of the blue. To protect your monetary interests, increase your financial savvy, using education and experience to boost your knowledge base. With financial discipline and understanding, you are well-equipped to preserve a positive credit rating and establish a long-term retirement plan.
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