To say 2020 has already been a rough year is an understatement. With COVID-19 having reached every corner of the world, it’s a frightening time. But, now is also one of the best times to review your finances, with the economy being so uncertain.
And hey, since you’re stuck inside anyway, why not put your time to good use?
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Here are some core financial lessons you should take to heart. If you manage your money well, when 2030 rolls around, you’ll be able to look back at 10 years of financial success.
What’s Ahead:
Never try to predict the market
While pundits often try to predict when a bull market will end (or, a bear market, in our current times), or the perfect moment to buy a hot stock, the best strategy for your investments is a slow and steady one. There is a reason most wealthy people are focused on long-term investment strategies and avoid day trading.
Day and short-term traders are engaged in a very risky attempt at making money. While some are successful, many walk away with a lot less in their account than when they started. If you don’t fully understand an investment or are just trying to make a quick buck in the short-term, you should probably keep your funds out of it.
Always think in the long-term
You might really want that new gaming system, outfit, or a new car, but is it the right decision for your money? In many cases, the answer is a solid no. Rather than indulge yourself with fancy dinners, expensive vacations, and big purchases today, consider what those funds could be worth if you saved them instead.
To have a successful financial future, think about that future when putting together your budget and making spending decisions today. I love sushi as much as the next guy, but I know that it’s better to keep it for special occasions. It’s short-term fun at the expense of your long-term financial stability.
Adjust your assets to your age
The investment account of someone under 30 should look a lot different than someone in their 50s or 60s. For someone under 30, investment wisdom says that you can put most of your portfolio into stocks, as stock market volatility is not as big of a factor for those with decades before retirement.
Most experts suggest slowly moving assets from stocks into bonds and other fixed-income assets with age.
Save more
While financial emergencies are not predictable, you can follow long-term financial strategies that can help you avoid a need for expensive short-term credit like credit card debt and payday loans.
A survey by CareerBuilder found that 78% of US workers live paycheck to paycheck. Even 9% of those earning six-figures live paycheck-to-paycheck and over a quarter of workers don’t set aside anything for savings each month.
Do your best to maximize your savings to the best of your ability. If you are not saving today, try starting with $5 per week and grow from there. Make sure to put your money in a high-interest savings account with no minimum balance requirements or recurring fees.
One great account to consider is the CIT Savings Builder. This account encourages you to save with a 1.45% APY interest rate when you save at least $100 per month or maintain a balance of $25,000 or more.
Invest consistently
The best way to invest for many people is a strategy known as dollar-cost averaging. This is an investment method where you add a consistent amount to your portfolio on a regular basis over time.
You can make this automatic by splitting your paycheck into your checking and investment accounts if your employer supports a split direct deposit. You can also add recurring transfers to your bank or investment account.
J.P. Morgan Self-Directed Investing is a top choice for investors thanks to low costs and an easy-to-navigate platform. There are also no trading fees for stocks or ETFs at J.P. Morgan Self-Directed Investing! And, you won’t even need to hold a minimum balance to start investing.
M1 is another brokerage option that’s great for automated investing plans. It also supports fractional shares, so you can buy into some high priced stocks even with just a few dollars.
Follow a budget or spending plan
A budget isn’t something that constrains your money or tells you where to spend. You set your own budget and use it as a guideline for where and how you spend your money. If you don’t like the word budget, think of it as a spending plan.
A well-designed budget sets aside funds for savings every month in addition to important bills like mortgage or rent, utilities, and groceries. Following your budget can help you add to an emergency fund and long-term investments.
It’s a good idea to build a budget that includes any regular recurring expenses, long-term goals, and other bills. The 50/30/20 budget method is a good place for people who are new to budgeting to get started.
For help with my budget, I look to PocketSmith. They actually help manage my entire financial life in one place. I can manage multiple income streams, start saving for big goals like paying off student loans, or buying a house. And, while I don’t take advantage of this, you can even keep track of your Airbnb earning on PocketSmith as well!
Prepare for financial emergencies
With so many Americans living paycheck to paycheck, it’s no surprise that a large number of households couldn’t afford common emergencies from savings. According to the Federal Reserve, about 40% of Americans can’t afford a $400 emergency without going into debt or selling possessions.
In the section above about saving more, I looked at starting your savings at $5 per month. At that rate, it would take 80 weeks to save up a $400 emergency fund. The more you can save, the faster you’ll hit that $400 milestone. But most people should save at least three to six months of expenses in a savings account to be adequately prepared for an emergency.
Build your credit
Your credit score and credit report are a big factor in what it costs to borrow money in the future and may determine if you can borrow at all. Just like your high school grade point average (GPA) summarized your grades in one number, your credit report summarizes your credit history in a single number.
That number, between 300 and 850, is used by credit card companies, mortgage lenders, and other lenders when approving your application and setting your rate. Paying all credit cards and other loans on time every month is the most important step in building and keeping a good credit score. Also, work to keep revolving balances, like credit cards, as low as possible to keep your score high and save money.
Optimize your accounts
Before you leave your finances to run on autopilot, take a look at your bank accounts, investment accounts, credit cards, and other financial accounts to make sure they are best for you. The old checking account your parents helped you set up in high school might not be the best place to keep your money today.
With the right accounts and a smart, long-term financial strategy, you’re setting yourself up for long-term financial success.
One app I highly recommend for anyone with a 401(k) or IRA is blooom. For a low yearly fee of $120, blooom will completely manage your retirement account for you. They’ll rebalance your portfolio when needed and make sure you’re not paying any unnecessary fees.
Summary
Times are tough, but that doesn’t mean you can’t make smart money moves right now. Above, I’ve summarized some key financial guidance that can help you be more prepared for financial success.
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