Building a secure financial future doesn't require a degree in economics, but there are a few guiding principles that can point you in the right direction and keep you moving forward. Here are valuable suggestions to consider when starting to build your nest egg:
1. It's never too late or too early to start. Think back five or ten years and ask yourself, "Where would I be now if I had started saving a little each month back then?"
2. Get out of debt. Payments on necessities such as a home or a car may come first, but next is paying off high interest loans or credit cards. That alone is a sound investment with a return equal to the interest being charged on each line of credit.
3. Establish a budget. A realistic budget that accounts for everything, including taxes, vacations, and holiday spending. While you're drawing up a budget, streamline your finances and think about where every dollar is going. Also, be sure you are properly insured with the right types and amounts of insurance.
4. Set aside an emergency fund. The goal is to have enough funds to live on for three to six months. Consider building your emergency fund in a low-risk investment that's easily converted to cash, such as a no-load mutual fund or a savings account.
5. Invest safely and simply. Be cautious with your investments until you have built a portfolio and have honed your knowledge of how the financial world operates. Your first investments might be CDs, mutual funds, or savings bonds.
6. Stick with your plan. Investing a fixed amount every month without fail is far wiser than waiting for a windfall from interest rate changes or a stock market jump. Inform yourself with periodicals, books, and television financial programs. Monitor your plan and gently steer it in a new direction if necessary.
7. Diversify. Remember to diversify even within the broader markets. A mutual fund may provide a range of stocks, but you should diversify further by investing in different types of mutual funds and in different "families."
8. Include your partner in planning sessions. In case something unforeseen happens, you and your significant other need to be in the loop on all the family's financial affairs . Also, input from a spouse gives fresh perspective for establishing realistic financial goals that include everyone's needs.
9. Automate. Set up automatic monthly withdrawals into your savings and retirement accounts, so that no additional actions or reminders are needed. If this money is already allocated in your monthly budget, you won't be tempted to spend what should be going to your savings.
10. Have patience. You do not create financial security in a few months, but you achieve it over many years. Seek professional assistance when you are in unfamiliar territory.