Before you can start investing, you should be in good financial shape. Knowing where and when to invest is also important but you need a solid financial foundation before you can build.
Your finances can become stronger in other ways too, by making small changes in your life. We are already halfway through the year which is a great time to evaluate your monetary status and habits. If you missed a spring cleaning, consider this a summer cleaning of your accounts and spending.
Below are just a few simple ways to get into good financial shape:
Adjust your spending.
- Sometimes, we spend more than we need to for everyday items without even realizing it. If we spend more time focusing on where we can save money on these items instead of buying without thinking, we can make room for other financial opportunities in our lives. These examples include:
- Your glasses. Eyeglass frames often cost more at the eye doctors and may leave you with little options. While we believe in supporting your local businesses, you may want to research cheaper alternatives to help your budget. Sites like Ebay.com and Vision Direct are two sources to check into. You will even be able to find bigger brands at a lower cost on Ebay.
- Lottery tickets. Skip purchasing those lottery tickets, and instead, put that money toward something more productive like a savings account or your retirement fund. If it’s the thrill of the unknown that you enjoy about lottery tickets, consider investing in stock instead.
- Groceries. Focus on buying what you need rather than what you think you’ll need. Produce goes quickly, so only buy the ones you know you’ll be eating. Plan your meals out in advance to have an idea so that you prevent wasting food as much as possible. Also, look for coupons and review your local grocery stores to see where shopping may be cheaper.
Automate your savings.
- We discuss this often here at Saving Advice, but if you have yet to do this, you need to start. Having money come out from your paycheck each month to automatically go into a savings account or fund account of some kind is important for getting your finances in shape. There are many options out there, but you can review a couple here.
Create an asset allocation.
- Asset allocation is an investment strategy where one evaluates the balance risk and reward for portions of each asset into an investment portfolio based on goals, risk tolerance and investing period. Basically, it is dividing up your investment portfolio into different asset categories: stocks, bonds and cash. It helps to put your money in the right place for you and creates a balance instead of focusing on one particular investment type. Additionally, research shows they yield most observed returns on investment over time. When and how you set up your asset allocation depends on where you are in your life. Stocks tend to be less risky for younger investors due to their longer investing time available while those closer to older retirement ages should focus more on bonds.
Maintain low fees.
- You should look to keep fees as low as possible. Online resources like WiseBanyan and Acorns, discussed in this article, help to get you started on your financial goals while maintaining your portfolio for you with low fees and no minimum contribution requirements. Always double check the fees, especially from financial advisers who may push you into an investment product simply for the commission rates they receive. Never be afraid to ask too many questions and have all details explained to you thoroughly. Also, consider signing up for checking and savings accounts that don’t charge you monthly maintenance fees.
As you work toward getting into good financial shape, remember to also spend less than you earn and always contribute extra to your employer’s 401(k) plan (if applicable). The more you do now, the better off your future will be financially.
What would you add to the list?