Money Management Series: Rule #5

We are wrapping up the money management series with one of the most important rules of them all: plan for the future. The CGS Team are firm believers in the power for planning and saving. We aren’t necessarily saying to skip out on fun in the present, but make sure you find that balance.

You should enjoy life now, as well as follow a plan to make sure your future is secure. You should want to leave something behind for your children (or charity or whatever else you choose), as well as be taken care of throughout your retirement. The point of working so hard when you’re young is to be able to live off of your retirement. We discuss future planning in more detail below.

Save for Retirement

The best thing you can do to plan for the future is contribute to a 401k (or IRA) as early as possible. A 401k is an employer-sponsored retirement plan. A certain percentage is taken from each paycheck and invested in your 401k plan. Often times, employers will match that percentage up to a certain amount.

You should contribute at least up to the amount your employer will match. This is technically free money. The earlier your start saving for retirement, the more you will have when you retire, thanks to compounding interest. According to Catey Hill, author of  “Shoo, Jimmy Choo, based on an 8% growth rate, if you start putting away $300 a month at 25 years old, you will be a millionaire by 65. If you start putting away $300 a month at 35, you will only have $440,445 at age 65. Need we say more?

Save for a House

Back when the housing market crashed in 2008, a house was more considered a liability than an asset. Now, the market has steadied out and people are going about purchasing a home in the right way. Long gone are the days where everyone is approved for a home, even though they did not have the income to afford it.

The U.S. Government has placed strict standards on mortgage lenders to ensure that people can actually afford to buy a home. The average home loan lasts 30 years. If you plan to retire at age 65, then you would need to purchase your home by 35 to avoid a mortgage payment at retirement.

That means you need to afford a down payment by 35. 20% down would help you avoid paying extra for PMI every month. Say you are interested in a $300,000 home (which is low in some areas and high in others), you would need a $60,000 down payment. How many people do you know at age 30 with a savings account like that? The ones that do have likely been saving for a while. To excel in your own money management, you need to specify your savings to include a home purchase. It is an investment in your future, and can be a very effective one if done properly.

Save for Your Children’s Education

It’s likely that saving for your children’s education will come after you have a home and started contributing to a 401k, but if not, this should be a priority. Unfortunately college isn’t cheap, neither is day care, private school, and taxes for public school. Education is an investment. You are making an investment in your child’s future.

Most people have tens of thousands of student loan debt after graduating college, but you can change that for your children. You can make start contributing to a 529 savings plan when they are born. You can put a certain amount of money away each month and never touch it. The best thing a parent can do for their child is provide them with the tools necessary to be successful when they reach the real world. Taking the burden of student loan debt away from them will definitely be helpful!

Find a Balance and Plan for Fun

If you contribute to a 401k, up to what your employer matches, save religiously for large purchases, and keep an eye on your spending, then you owe it to yourself to plan for fun. Give yourself $100 a month to enjoy yourself. Want to go on vacation? Start budgeting for it. Put that $100 a month into a savings account and before you know it, you will be able to fund your trip!

The point is not to plan so much for the future that you don’t enjoy the present. The reality is that the future is not a guarantee. Enjoy your life (in moderation) as well as prepare for your future. If you’re around for it, time flies. Put yourself in a position to be successful 5 years from now, 15 years from now and 50 years from now.

Well ladies, that wraps up the Money Management Series. We hope you learned the importance of each of the money management rules and will begin to apply them to your own financial situations. You are capable of achieving financial independence, with a little discipline. Remember, we are always happy to help and we are here working hard with you! We would love to know what you thought about the money management series! Did you find it knowledgeable? Will you apply the money management rules to your financial situation? Leave a comment below to share your thoughts!

-The CGS Team

Check out other Money Management Series Posts:

Money Management Series #1: Budget Your Money

Money Management Series #2: Set Financial Goals

Money Management Series #3: Get Specific About Saving

Money Management Series #4: Deal With Debt

Money Management Series #5: Plan for the Future