Money matters can be so overwhelming. Between paying off student loans, learning how to budget in order to actually save money, poring over that millennial tax guide and even trying to get a handle on things like your 401k, there’s a lot of info floating around out there. To streamline the convo and get a grip on what we actually need to know, we reached out to Megan Terzian, an Associate Financial Planner at Mosaic Financial Partners in San Francisco. We pared-down her heaps of helpful advice to the five key things you can do in the next week to prep yourself for long-term financial success.
1. Write your goals down. It seems super basic, but have you ever sat down to think about what your financial goals really are? Whether it’s paying off a credit card, saving for a vacation or taking a substantial amount of time away from work to travel, Megan says to write each one down. “Allow your mind to wander and explore each thought about your money. Studies show that those who wrote down their goals accomplished significantly more than those who didn’t.”
When it comes to saving, Megan mentioned the “50/20/30 rule” — dedicating 50 percent of your income toward fixed costs, 20 percent toward savings or retirement and 30 percent to discretionary spending. She says, “In an IDEAL world, we’d all do that. But not everyone is able to, and when I personally think about it, I automatically get anxiety! Instead of feeling bad, be honest with yourself and save what you can. Do you really need the $5 Blue Bottle coffee every day? Probably not. What are you currently doing that you might be able to do differently? Maybe you can save 20 percent or more every month and that’s great! Don’t feel guilty or anxious about this exercise. Its purpose is to give you clarity and control of your financial foundation.”
2. Control your cash flow. Once you’ve clearly defined your goals, Megan says to get a comfortable handle on your cash flow by accurately tracking the amount of money you’re earning and spending each month. “I’m not saying you need to keep track of every single dollar you spend, but you should have a good idea of what your monthly expenses are. Though this isn’t always an exciting exercise, it’s incredibly helpful in meeting your financial goals.” So while enjoying a weekend cup of joe, spend some time writing down a rough estimate of ALL of your expenses. Be sure to include all of the little things that add up, like Uber rides and trips to the dry cleaners.
3. Open a savings account for each major money goal. Now that you have a good grip on where money is going each month, you know what’s left over too. Megan suggests creating a couple of different accounts for specific purposes, including an emergency fund, a vacation savings account and one for any other specific goal you’ve set for yourself, like buying a new car. “Most banks offer automatic debits from your paycheck into another account or free transfers from a checking account to savings account,” Megan says. “So let your newly named, very specific accounts serve as a constant reminder for the purpose of your money and feel excited while watching them grow.”
4. Think about your future. Whether it’s your first job or you’ve been working for a while, you NEED to think about retirement. “Do you have a 401(k) through your employer that you’re not taking advantage of? Now is the time to enroll. If your company offers matching, that makes the deal even sweeter!” Megan says. She also advises using an IRA account to save more in addition to your 401(k). A traditional IRA allows you to contribute pre-tax dollars while a Roth IRA allows you to contribute already-taxed money. Take advantage of resources available to you at work by chatting with the HR department or even a consultant the company has appointed to help employees.
5. Fine tune your 401(k). “Make sure your 401(k) allocation is not going to a money market fund, which is essentially cash. This is a common mistake, since some plans designate a money market fund as the default election, meaning your contributions go there unless you specify something different,” Megan says. The reason why? Money market funds have low returns. Time is on your side here, and Megan advises to take FULL advantage of the power of compounding interest. Even better, she says, “Think about a target date fund that will give you a diversified mix of investments that will change over time as you get closer to retirement.”
Taking the time to truly think about what you’re working toward means you’re MUCH more likely to stay the course. Now is the time to create the foundational money habits that can set you up for financial success later.
What’s your biggest worry when thinking about money and the future? Spill with us @BritandCo so we can score even more helpful guidance for you!
(Photos via Getty)