Nowadays, more and more people are working remotely and freelancing online, which means managing your finances can be difficult without using traditional tools such as check stubs and payment notifications. The good news is that other options can make it easier to keep track of your earnings, expenses, and overall financial health. Here are 10 finance lessons you should know at every stage in life, from paying off student loans to saving for retirement.
1. Don’t Spend More Than You Earn
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It’s simple advice, but it works. It may sound obvious, but it’s an important rule for young adults. If you get in too deep with debt or other obligations, getting ahead financially will be challenging. The best way to avoid living beyond your means is to have a budget and stick to it. Create a monthly budget that includes all of your expenses, and then make sure you don’t spend more than what is allocated for each category (housing, transportation, food, etc.).
2. Money Doesn’t Make You Happy (Or Unhappy)
Experts have long tried to figure out whether there’s a correlation between money and happiness. And in 2009, four leading researchers published their results on money and happiness. Two major results emerged from the research: First, time is what makes people happy—not more money; second, those with more money don’t necessarily report being happier than those with less.
3. Keep Your Finances Simple
Before you reach your 30s, you may not have to worry much about complicated finances. As long as you have a steady income and don’t acquire too much debt (credit cards), your financial life is pretty straightforward. The key is to start saving for retirement early so that by the time you enter your 30s, it won’t be a scramble to save money for retirement or get rid of excess debt.
Also, keep an eye on your pay stub to make sure you’re being paid fairly for each hour worked—especially if you work remotely. Finally, always check in with a financial adviser before making any major purchase or investment.
4. Compound Interest Is A Powerful Force
Compound interest is one of those financial secrets that can enrich your life. As Investopedia notes, compound interest occurs when interest is added to the principal, earning interest. This process can dramatically increase how much you have in a savings account or other investment, depending on how long your money grows via compound interest.
For example, let’s say you invest $10,000 at a 5% compound interest rate per year. If left alone for 30 years, your investment will be worth more than $32,000—even though you only invested $10,000.
5. The Sooner You Start Saving, The Bigger Your Nest Egg Will Be
If you’re in your 20s, you’re lucky to have plenty of time to start saving for retirement—and you should. The sooner you begin contributing to your 401(k), IRA, or other employer-sponsored retirement plans and then continue making contributions until age 701⁄2, when required minimum distributions kick in, the more money you can accumulate. Aim to sock away 15% or more of your income each year.
Be careful not to withdraw from these accounts before you reach retirement age; if you do, penalties will apply. Make it a habit to review your pay stub: While it may seem like a hassle at first, looking over your pay stub is an easy way to ensure that everything is being taken out of your paycheck that needs to be. Check that things like health insurance premiums are being deducted and payments toward student loans and savings accounts.
6. Have An Emergency Fund Ready
Financial planning isn’t just about planning for your retirement—it’s also about preparing yourself to handle a financial crisis. The best way to do that is to have an emergency fund covering three to six months of expenses. This will help you avoid going into debt and paying high-interest rates on credit cards. Your pay stub should include information on any money you put toward an emergency fund each month.
7. Invest Only After Reaching Your Emergency Fund Goal
The first milestone is saving up an emergency fund. A good benchmark for emergency savings is enough money to cover 3-6 months of living expenses (though I recommend having enough to cover at least 6 months). Once you have that in place, it’s time to start thinking about investing.
8. Take Advantage Of Employer Benefits And Perks
Sometimes your employer will pay for some or all of your benefits, such as insurance. If you’re in a job that does, take advantage of it! Sometimes there are other perks—like free gym memberships and discounts on local attractions—that you can also get. These are often strictly for employees (or their families), but sometimes they’re open to anyone.
9. If Saving Money Isn’t Working, Don’t Keep Doing It. Try Something Else Instead.
Pay stubs are like that bar graph showing your bank account—if you keep spending money faster than you’re earning it, you’ll eventually run out. A survey by Bankrate found that most Americans don’t have a financial safety net to cover them if they unexpectedly lose their jobs or face another setback, and more than two-thirds of workers said they didn’t participate in a formal employer-sponsored retirement plan.
But when we look at our pay stubs every month, we see how much we’re making—and even though it might not feel like enough, we can make changes to save more for later. Try making small adjustments to your monthly budget. Cut back on dining out and put that money into savings instead. Or get rid of cable TV and use those funds for retirement savings instead. If saving isn’t working for you right now, try something else!
10. Buy From The Outside In. Focus On Building Wealth Through Investments Before Buying Things.
Financial advisors often tell investors to buy from the outside in—but how exactly does that work? It means buying investments first before spending money on big-ticket items. That way, you have time to build wealth through investing.
The same advice applies to remote workers who have moved from a traditional office environment to home. Having savings is critical for your peace of mind and your financial security; don’t neglect it. If you’re not saving now, start today. It might feel uncomfortable at first (especially if you’re used to using credit cards or financing purchases), but it can become second nature with practice and discipline. Don’t use credit cards unless necessary. Many remote workers are self-employed and freelance contractors who depend on cash flow and revenue streams to pay their bills.