Long term financial success is just that, success from the outset, but what if you started late, or have not started at all, not unlike your physical being, your financial being needs to be exercised methodically and over your lifetime. That being said, if you are a bit older, this will be a bit harder, as in life, if you are 20 years old, getting into physical shape will be far easier than if you are 50. It does not matter though when you start, it matters that you understand what you need to do to get there. When you look to get into physical shape you may join a gym, hire a trainer, read some books and set out a plan of action and workout schedule. The same holds true for your finances too. It does not matter what age you are, if you are getting a late start, better now then never, if you are getting an early start, great, but you must remember that it is a marathon, not a sprint.
Factors to Consider
- Power of Interest
They should really teach this in school. I am sure they do, to some extent, but I mean really hammer it home when kids are young, in elementary school, those impressionable years, because if I would have know about these things before now, life for me would be different. But savings is crucial to long term financial success. According to the United States Government Accountability Office nearly 30 percent of households age 55 or older have neither retirement savings nor a plan for savings. That is a big percentage considering the possibility that social security may not last forever. And if it does, will not be enough to even remotely sustain a family alone. Setting aside money each pay day will increase your odds of having a good nest egg come retirement time, or in case of an emergency.
The Balance of Money
Gross income is a great number, but it is hardly reality, you have to consider one big number, taxes, a conservative percentage of gross income that should be ear marked from taxes is about 25 percent, then with a minimum of savings of that yearly income of about 20 percent, that leaves the rest 55 percent for everyday living and bills, example $100,000 gross income, less $25,000 in taxes leaves $75,000 in take home pay, less $15,000 (20%) for retirement and savings, leaves $60,000 to live on, or $5,000 a month. Not a huge sum to live on these days, your mortgage could be a third of that alone, and with car payments and car insurance, there could be little left to play with.
Take the figures from above and you are left with; $5,000, which is a far cry from $8333.33 the gross amount of a $100,000 income. Now granted a lot of folks are not raking in that much money, and in reality 100k is not that much in today’s dollars either. So budgeting is ever important, if you do not budget, you may be forced to dip into your savings and retirement, thereby putting your future at risk. So you would want to budget, and even try and get under budget so that you can even have some play money to work with down the road. You should try and eliminate any unnecessary expenses or drastically reducing them, on big expense that we never think about is cable or satellite television, it can be an extra $2,000 a year in savings if you cut that expense out.
Interest is a wonderful thing, it helps your money work for you, so tie this in with when you begin to save and you have a real powerful tool working for you in the shadows, making your money grow, while you enjoy the success of everyday life. Now if you start saving money early in your life, your compound interest on money will be real great, starting later in life, no so much, but better than nothing, so don’t despair.
Putting It All Together
As you can see, the financially fit have a plan just like the physically fit. The secret to long term financial success is to start early, and stay on the path, you may have hiccups along the way, like your health, you may have a financial set back, but if you have the tools and knowledge, you can get right back into the swing of things with your finances. You must have a savings plan, learn the balance of money, and budget. If you have those three, the fourth, the power of interest on money saved will make your nest egg grow exponentially. And it is that growth, after the discipline that will be the fruit of your endeavour.