Thursday, December 12, 2013

Save Yourself the Headache: Five Tips for Financial Security

Everyone dreams of the day when they can finally retire from work and have the freedom to travel, pursue hobbies, and spend time with loved ones. These dreams can become reality if you are willing to follow some simple steps to attain the goal of financial security.

1. Save When You are Young

The single most important thing a young person can do is start saving right away. It may be tough to have the discipline, but saving now guarantees that your investments have decades of compound interest to help them grow. For example, if you put away $5,000 at the age of 20, that money will grow to $160,000 over 45 years at a steady eight percent interest rate. But put away the same amount of money at 39, and your money only grows to $40,000. That is the magic of compound interest.

2. Don't Get Divorced

Splitting a household of assets diminishes wealth like few other major events. Granted, there are times when staying married is unthinkable, but faced with the prospect of spending tens of thousands of dollars in attorney fees, dividing the family's assets, paying child support, and possibly dipping into retirement funds, couples therapy can be a much wiser investment for your financial future. This may not be a very popular point but nontheless you can save money by actually staying togther.

3. Refinance to a Shorter Term Mortgage

A traditional 30 year mortgage costs a homeowner, on average, hundreds of thousands of dollars in interest. Refinancing to a 10 or 15 year mortgage through a reputable company like Legacy Lending Group saves you money in two ways: The interest rate is lower, and principal payments on the loan are larger. This combination of factors allows you build equity faster, helping you to achieve financial security.

4. Make a Budget

It is hard to deny the real cost of your daily muffin and espresso if the figures are entered in a spreadsheet. If you chart every single expense for one month, you will have a much better idea of how to trim back your expenses. It is extremely surprising to me how many people don't do this because the money that you save, in turn, can be invested in an IRA or used to pay down your home mortgage faster.

5. Avoid Spending Habits

At an average of six dollars a pack, cigarettes are an expensive habit, hampering an individual's ability to save while they are young. For an older person, the loss of income due to smoking-related health problems and the higher cost of health care itself pose even more serious challenges to financial security. Other expensive habits include drinking alcohol or even frequent trips to the gas station for their daily coffee. Simply put, you can't afford not to quit these habits.

Attaining financial security is a goal within everyone's reach. You just have to plan carefully and make judicious short-term sacrifices to achieve those long-term rewards.

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