Sometimes the terms “financial planning” and “budgeting” can cause fear and anxiety, instead of excitement for the future. Amplify has several tools and financial planning options available that can help you get on track for a successful financial future at any age.
Below we’ve included an excerpt from our interview with Janet and the following reflects her opinions regarding financial planning and budgeting.
Why is it important to start setting financial goals at a young age?
There is no better time to start investing than when you’re in your 20s and the most important reason to start saving early is compound interest. Money that you invest in your 20s has the longest amount of time to grow and even a small amount of money when it compounds over time can grow dramatically.
Using financial tools or working with a financial advisor can help you see where you money is going, set reminders of when to invest and keep you motivated to continue progressing toward your goals.
How much money do you recommend people keep in their checking account vs. their savings account?
Everyone should always have an emergency fund created that includes somewhere between three to nine months of basic living expenses. Once that’s taken care of, I typically recommend that you keep two months worth of expenses in your checking account, in case you tend to run over or you have something come up. Withdrawing from your savings can be dangerous because you might not be able to put the money back right away, and you run the risk of depleting your savings.
How do you recommend creating budgeting balance?
How much you should be saving is based on your particular situation. You need to save much more based on your age, but your savings rate should never be lower than 10 percent of your monthly take home. If you have access to a 401K, I recommend that you hit your maximum contribution and take advantage of any matching programs your company might offer. For example, you can match the full five percent and then aside from that try to save another 10 percent of your total income.
Remember that you don’t have to do it all at once. There are ways to gradually increase what you are contributing and work toward that goal.
When practicing financial fitness, how do you monitor progress? How do you recognize setbacks?
Major financial milestones and improvement can be measured in a couple of ways. If you have debt, a reduction of debt is more valuable than investing or saving. If you have credit cards with high interest rates, it’s much more valuable to decrease the balance on your credit cards.
If you don’t have debt, the most important metric is the return on investment. Saving a dollar is great, but saving a dollar through a money market or other investment that increases its value year-over-year leads to a much greater return.
The bottom line is the total improvement in your net worth over the year. Your net worth improves through a combination of increased savings, return on investment, and the amount of debt you’ve paid down.
What is your final advice for financial improvement?
My last advice is to be selective about where you spend your money. If it’s important to you to eat well, but less important to you to drive a fancy car, splurge on nice meals and drive a used car. For example, I enjoy traveling, but don’t care about shopping or luxury products, so I set aside my savings for trips.
We can’t all be budgeting super heroes and budgeting advice can be overwhelming because it tells you to cut everything. You don’t have to cut everything 100 percent; you just need to take a step forward to cut something. Know yourself, know your spending habits and know where you feel comfortable cutting so you can make a real impact.
Janet Al-Saad is a senior editor with Wise Bread and runs the personal finance blog and forum, the Five Ten Twenty Club. Janet is a long-time veteran of the financial journalism industry, having been Managing Editor of Mint.com, US News Editor of Reuters BreakingViews, and a Contributing Editor at TheStreet.com. She’s also been a financial TV reporter and anchor, delivering news for nationally syndicated business show, First Business, and TheStreet.com TV, where she covered daily market happenings from the NYSE & NASDAQ.
What’s your next step toward financial success? Amplify can help you with your overall financial planning and goals. Contact a CFS advisor* at Amplify Wealth Management today to schedule your complimentary financial analysis and start making progress toward a successful financial future.
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