It’s never too early to start taking steps towards financial security and responsibility. If you were to ask about half of the people who are now in their 50s and 60s, they’d probably tell you they wish they had become more financially responsible earlier in life.
The sad reality is, mistakes made in your 30s and 40s can affect you for years to come. But the good news is the same goes for smart decisions you make now — they can have a positive effect on your finances for the rest of your life.
Setting yourself up for financial success is much more than just saving money and paying your bills on time. It’s about developing habits that will carry you through years of financial freedom, as well as taking advantage of tools to make sure you’re making the most of your current financial situation.
Ready to set yourself up for financial success years down the road? Here are some financial tips and habits for how to manage your money that will help you plan for a solid future. Try to have these habits established and in place by the time you hit 40!
Try these smart strategies for saving money on everything from groceries to kids’ clothes to your utility bill
1. Check your credit report regularly.
Did you know you can get three free copies of your credit report per year from each of the three main credit reporting agencies?
But why is this important? Your credit will determine things like whether or not you can rent an apartment, as well as how much interest you’ll pay when you take out a car or home loan. Even if you think your credit is in good standing, you may be surprised to find late payments or other dings to your credit that you weren’t aware of.
Checking your credit report also gives you a chance to spot errors and quickly report them so they don’t affect your application for a home loan or apartment rental application later down the road.
2. Check your monthly credit card statements.
Get in the habit of checking your monthly credit card statements for errors.
I can’t tell you how many times I’ve found a re-occuring charge from something I agreed to pay on a one-time basis, yet I keep getting billed. Or, finding out I’ve been overcharged!
Recently a restaurant accidentally charged me $53 for the table next to me. Their system accidentally used my card to pay for not only our dinners but the other tables, too.
You have a lot of protection under your credit card user rights. If you want to file a dispute, your credit card company will help you resolve any issues.
3. Automatically deposit money to your retirement account.
According to Kimberly Palmer, author of “Smart Mom, Rich Mom,” it’s important to open a retirement account and automatically put money in it each month regardless of your current work situation.
“Barring true emergency periods, such as unplanned unemployment, it’s essential to be saving for retirement, whether you are working full time, part-time, or just picking up the occasional freelance gig,” said Palmer. “Even if it’s a small amount, establishing the habit of putting some money away for the future will be a godsend in your 60s, 70s, and beyond.”
The amount of compound interest you’ll earn between now and the time you actually retire can make even the smallest of contributions become a significant amount of money. Use a compound interest calculator to help determine how much you can earn in interest on the money you invest now.
4. Pay with cash.
This may be a tough one, but it’s one sure way to help you save money.
I learned this tip from the best financial expert I know: my dad, Galdo. I know, it’s so easy to pull out the plastic, but that leads to unconscious spending. I’m guilty of this myself!
If you have to pay cash for everything from groceries to clothes to travel, you’ll spend less. It’s much more difficult to hand over five $100 bills when shopping than it is to swipe a card and sign your name. In fact, MIT did a study that showed there’s an actual pain associated with handing over cash.
Get in the habit of setting aside the money you need for each category in your budget — groceries, clothing, personal care items, etc. — and start consciously saving money.
5. Always check for a coupon before buying.
Don’t buy anything before checking to see if there’s a coupon or coupon code to save you money. My parents instilled this habit in me at a young age and I’ve saved thousands of dollars over my lifetime by doing just this one thing.
Before I go grocery shopping, I find out what’s on sale and find coupons for items I need. If I’m shopping online, I always check for coupon codes. On average, I save about $50 every time I go grocery shopping by simply buying what’s on sale and using coupons.
If you were walking down the street and saw a $50 bill wouldn’t you pick it up? I certainly would. That’s how I view using coupons and shopping the sale ads. Also, take advantage of apps to help you save, like the Coupons.com app.
See my couponing strategy in action: How to meal plan with coupons
6. Pay off credit card balances by your due date.
It’s important to use credit cards to establish good credit, but you should always pay off the balances by the due date. Keeping a high balance and accumulating interest is wasted money. Here’s an example from Credit.com: If you have $10,000 in credit card debt with an 18 percent interest rate and you pay $250 a month, it will take you 62 months to pay off that debt. You’ll also have paid an additional $5,386 in interest!
Basically, if you’re 32 now, you’ll be almost 40 when that debt is paid off. So, it’s important to pay as much as you can every month to bring the balances down. Call your credit card company and ask if they could work with you to lower your interest rate.
If you find you’re in serious debt, do something now. Do not wait. Credit counseling services, such as the Credit Counseling Services of San Francisco, can help you work with your creditors to begin paying off your debt. When people are in their 30s and 40s, oftentimes credit cards are a way to make ends meet. So, get the help and control your credit cards instead of having them control you.
Don’t struggle to pay off debt: My 11 tips for paying off credit card debt
7. Write a will & take out life insurance.
This is something most 30-40 year olds aren’t thinking about, but Palmer recommends taking out insurance and writing a will.
“It might be depressing to think about, but being prepared requires it — make sure you have your paperwork, including a will, in place for yourself and any other adults in your family,” she said.
I agree with this, especially since you can get fairly low rates on life insurance at a young age. If you have children, having insurance and a will or trust is extremely important.
8. Keep an emergency fund.
Palmer also recommends putting yourself in a position to handle emergencies.
“That means having a fully funded emergency fund with six months’ worth of expenses in it. You never know what life might bring — from a job loss to a health emergency — that will require sudden cash flow. Make sure you can take care of yourself (and your family) by preparing for the inevitable rainy day.”
9. Get the most out of your 401k match.
Even though it seems like years away, start saving for retirement now. If your employer offers a 401k, take advantage of it to the fullest if possible. This means taking advantage of the 401k match many employers offer as part of your benefits package.
If you decide not to take advantage of this, it’s almost like tossing out free money! Typically your employer will offer a match as a percentage. For instance, if your employer says they’ll match up to 6% of your salary, that means for every dollar you contribute, up to 6% of your salary, your employer will contribute money to match the contribution you made.
Let’s say you currently make $60,000 a year, and you contribute 6% of your salary on a pre-tax basis, which comes out to $3,600. If your employer matches 4%, that’s $2,400 they’re adding to your retirement fund per year! Look at it this way, a 401k contribution match is like a raise you’re saving to enjoy later in life.
However, you’ll also want to find out what your employer’s vesting schedule is for this match. Oftentimes you don’t have full access to the money your employer matches to your contributions, but instead you gain access to portions of it over time. For example, you may vest 25% after your first year of employment, then 25% each year after until you’re 100% vested.
The vested percent tells you how much of the employer’s match you could take with you if you decided to leave your company. In the previous example, if you decide to leave after being with your company for two years, you’ll only be able to take 50% of the employer’s matched contributions to your 401k with you.
Side note: Speaking of employer matches, did you know the Committee Encouraging Corporate Philanthropy did a study that showed 94% of companies surveyed offered a charitable donation match program? This means if you decide to make a donation to a charity, your employer will match that with a donation of their own! How cool is that?
10. Get renters or homeowners insurance.
If you currently rent an apartment, condo, or home, you should consider getting renters insurance. If you own your property, you should look into homeowners insurance.
Not only does this type of insurance protect you if you’re ever robbed or your possessions are damaged, but some of these policies also offer other protections such as liability coverage. They’re usually inexpensive, maybe about $20 a month, so they’ll give you a big bang for your buck!