Jul 19, 2021 / Finance

Our Guide to Financial Security: Things to Do Now For Your Future Self

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When most people think about managing their money or creating financial security, they wrongly believe that they need to start buying stocks and using the equity in their homes. Financial security is all about managing your money to give your future self options. It does not have to be difficult; in fact, there are a number of small things you can do that will greatly benefit your future self.

Know Your Numbers 

Most people don’t want to budget. They don’t like having to write down exactly where every penny went or setting up budgets for every area of their life. Saving for future financial goals does not have to include rigorous budgeting if that is not your thing. But at the bare minimum, you need to know your numbers.

  • Your Income – How much money is coming into your bank account every month. Add up all of your income sources.
  • Your fixed expenses – How much is leaving your account each month. Ideally, you need to know your necessary expenses and your discretionary expenses (extras like Netflix).
  • Your variable expenses – Things like food or transportation that may vary a little per month but are essential.

These numbers will give you an idea of how much it costs you to maintain your lifestyle and how much money you actually have leftover per month for discretionary spending or saving. If your expenses are more than your income, you need to have a serious look at your lifestyle and make some changes. You should always have money left over.

Separate Savings Accounts 

If you leave all your money sitting in your main savings account, you will spend it all. By putting a step in the way of accessing your money, like having it in a separate savings account with no debit card, you are less likely to spend it. Having a separate savings account is the first step in saving for future financial goals. You can have as many or as few savings accounts as you want. Most people will have at least three accounts:

  • Main account
  • Emergency fund
  • Savings Goals

Your main account will be connected to your debit card and is basically your spending money. Your emergency fund is an account set aside to give you the financial security you need during an emergency. It will keep your head above water if you lose your job or need to buy a last-minute plane ticket to visit a sick loved one. Your Savings Goals account will be anything you are saving for in the near future, like concert tickets, a holiday, or even just Christmas. Start with at least these three savings accounts, but if you need to be more disciplined with your saving, consider having more savings accounts.

How much should you be saving? Well, the answer is different for everyone, but you should look at your savings goals as a percentage of your income. This percentage should be transferred out on the first day you get paid, do not just save from what is leftover before the next payday. You might need to start saving 5% of your income until you build better financial management habits. But the ideal amount would be between 10-20% of your income.

Automatic Transfers 

One of the best things you can do for your present and future self is set up automatic transfers in your savings accounts. This way, your money does what it needs to without you. It will greatly help you in saving for future financial goals by ensuring your money gets distributed to your savings accounts automatically. It will also help you improve your credit score because you can use automatic payments to ensure your credit card and bills are paid on time. No more forgetting to transfer rent or missing yet another credit card payment.

Living Below Your Means 

There is a phenomenon called lifestyle creep, which means that the more we earn, the more we will upgrade our lifestyle. That is why you have people earning six figures who have no financial security and are one emergency away from being homeless. The best way to set your future self up for success is to live below your means. Instead of getting a nicer car or taking a vacation every time you get a raise or a bonus, put the extra income straight into your savings and stay at your living level for a couple more years. Warren Buffet is a billionaire, and he doesn’t live in a mansion or drive a sportscar. He has maintained a humble (in relation to his net worth) lifestyle all these years.

By living below your means, you spend your fun money intentionally—no more lamenting that you have no idea where all the money goes. You know exactly where it went because you spent it with purpose on things that you enjoy. Work out what makes you happy and what you want to spend your extra money on and spend it on that. A new car doesn’t bring you joy. A slightly bigger home won’t; in fact, it means more cleaning.

Maxing Out Retirement Accounts 

Retirement planning is a large part of looking out for your future self. If you don’t want to be working a full-time or part-time job well into your 70s, then you need to start putting money aside for your retirement. The easiest way to do this is through your employer-matched retirement fund. A percentage of your paycheck goes straight into your retirement fund, and your employer matches that contribution. Check your current contributions and increase it to the maximum amount that your employer will match; why wouldn’t you take advantage of free money from your boss!

If you have spare money and want to be extra prepared for retirement, then you should consider an ISA. You can contribute up to the maximum amount per year without being taxed on interest rates earned on the money in an ISA. A lifetime ISA can be used as a retirement fund, and the government will contribute 25% of what you do per year up to £1,000.

Find Another Income Source 

While budgeting and cutting down expenses is all well and good, another great way to save for future financial goals is to make a little extra money. You do not have to get another job to do this; you can start a side hustle. Even earning £100 a month will give you £1,200 per year and is easily achievable without giving up too much spare time. You could do things like dog walking or selling stuff online to make it a little bit extra easily. However, a side hustle is a great way to build new skills or start a new business. Many people have successfully taken their side hustle from £50 per month up to £500 or more a month just spending an hour or two a day on it. Think about the extra financial security a couple of thousand extra will give you.

MyHalo post topic Finance Published Jul 19, 2021 | Tagged: Bank Accounts, Expenses, Financial Security, Income, Retirement, Save Money, Savings


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