Even in a down economy, it’s possible to spend wisely in order to protect long-term financial health. Recessions and inflation are not permanent situations but temporary ones that typically run out of steam within a few years.
That’s why it’s so important to look at the big picture when attempting to create wealth, retirement security, peace of mind, and financial stability.
While there are plenty of techniques for making your monetary life more solid, working adults typically turn to six tactics for getting through tough times and coming out in good financial shape.
In addition to setting up an automated savings routine, savvy savers borrow to cover college expenses, know how to live within their means, never purchase new vehicles, understand the value of aiming for homeownership, and minimize the use of credit cards. Here’s more about each of the weapons in your arsenal for creating personal financial stability.
Save and Invest Automatically and Regularly
The first rule of saving is to make the practice a habit. Deposit money into an account regularly, whether from paychecks or any other source of income. Consider setting a fixed percentage, like five percent of every paycheck being designated for savings.
For retirement accounts like IRAs, do your best to contribute the maximum amount each year. Another aspect of the savings puzzle is having an emergency fund. There are various theories about how much to set aside for emergencies, but most people feel comfortable with an amount that’s equivalent to about three months’ salary.
Borrow to Cover College Expenses
Being smart about financial moves is at the very heart of what it means to build long-term wealth. For anyone who intends to get a college degree, paying for the education is the first hurdle. Luckily, if you don’t have enough savings to cover the cost of a four-year degree, and few do, then the best route is applying for a student loan.
It’s possible to get enough funds to cover some or all of the cost of college. A more subtle benefit of applying for an education loan is that it eliminates money worries while you’re in school. That way, you can pay more attention to the everyday challenges like earning excellent grades and reaching the finish line known as graduation day.
Live Within Your Means
One of the foundation principles of financial stability is learning to live within your means. Nearly all successful people have mastered this skill, and it can serve you well for decades.
Though easier said than done, staying within a budget is the single most effective way of dealing with inflation, avoiding credit card debt, and learning to adapt to good and bad economic conditions. Adaptation is a core concept in human evolution, and it plays a similar role in budgeting.
It refers to doing things like sticking to a grocery budget, not paying too much for cars or homes, learning how to save for retirement, and more.
Invest in a Home
For more than a century, the idea of investing in a home has been one of the top goals of working people all over the world, and it remains so today.
If you don’t have good enough credit or enough for a down payment right now, make a detailed written plan to acquire a home. Set a target date based on approximate prices, the amount you think you can save for a down payment, and other factors. The overall goal is to put yourself on a path toward home ownership.
Avoid Buying New Cars
New cars depreciate significantly between when you buy them and the end of the first year of ownership. In almost all cases, it makes much better financial sense to purchase vehicles that are two or more years old. Of course, there are other factors to consider, like the vehicle’s condition, its total price, the features you want, and its book value.
Keep in mind that if you shop around for a reliable used car, the total cost of ownership is typically much lower for an average five-year period, which is the average amount of time people hold onto a vehicle.
Minimize Credit Card Use
There’s nothing inherently wrong with using credit cards, as long as you use them carefully. For example, avoid acquiring cards that come with high interest rates and fees.
Choose carefully and select one that offers reasonable terms and a spending limit you are comfortable with. View plastic as something to use in an emergency and a bill that you pay off in full each month. That way, you’ll pay almost no interest and still get the benefit of having a credit card.