How to Start Your Financial Life
Maybe it is just my perception, but it seems that more and more young people are interested in personal finance and starting off on the right foot. There really is a lot of information to digest, many investment and personal finance products, and a great deal of advice. So who do you listen to and where do you start?
First off, congratulations. By ending up here you it means you probably have an interest in starting your financial life and are off to a great start. Digest as much information as you can by reading popular personal finance books, participating in personal finance forums and doing everything you can to increase your financial IQ.
Visit your library and just soak it all in by reading personal finance books. These will help you understand the terminology while preparing you to create a wealth accumulation plan. Reading personal finance books and listening to audio programs during your daily commute will help you develop the mindset of someone who creates wealth. Investing and becoming wealthy is really not difficult, but you must develop the habits of millionaires in order to help you achieve your goals.
I recommend downloading a copy of the The Millionaire Mindset, which will help you develop and bring out your innate millionaire habits.
Secondly, get in the habit of creating a saving attitude and create systems to help propel your financial life in the right direction. When you have extra money, it can serve two purposes:
- You are prepared for unexpected expenses that would otherwise drive you into debt.
- You can put money to work for you, and let your money make more money.
When you put your money to work for you, it’s astounding how The Power of Compound Interest can make you become rich without much effort on your part.
One misconception is that a saving attitude means to be a minimalist and only spend money on the necessities in life. I disagree with this belief. You work hard to earn money and deserve to treat yourself to the things in life that you enjoy, and it is important to reward yourself for your hard work.
However, this does not mean you should blow every paycheck. Set yourself short-term and long-term goals, and reward yourself for those goals. If you want to take a vacation to Tahiti, simply budget for your trip setting a little bit of money aside every week, or you could create additional income streams to help finance your trip (see 9 Ways to Make an Extra $100 a Month). You can do all of this while living within your means and having a saving attitude. The best vacation is the one that’s paid off before you even bored the plane.
Third, learn a bit about investing before you try to dive in and get rich. The last thing you want to do is try to chase a high-performing stock, try to time the market, or get lured in by acclaimed profits in the FOREX market. Those strategies are doomed to fail, and your goal is to win.
When someone who is just starting their financial life loses all of their money in an investment, they lose their confidence in the stock market as a vehicle to make money and will never invest again. That’s unfortunate. Spend the time to learn about compound interest, diversification and asset class, and avoid books on investment strategies, methods and techniques. As an individual investor you do not need to know advanced investing techniques – leave that to the professionals.
The better strategy is to invest in a diversified mutual fund that represents the S&P 500 stock market index, which will bring you average results that will help you accumulate wealth.
Millionaire Money Habit: Accumulating wealth starts with creating certain mindsets and developing a saving attitude. If you simply avoided bad debt, saved 20 – 30% of your income, and invested your savings in an index fund for the long term, you could not help but become wealthy.