We face countless personal financial decisions every day. These decisions, big or small, work together over a lifetime to define our finances. Consistently making good choices can help you earn a high credit score and build wealth. However, it can be a real challenge to make the best choice all the time, or even most of the time. But these tips can help you make smart financial decisions in your everyday life.
Think long term
Thinking long-term as we make financial decisions is critical for building lasting wealth. It puts into perspective everything from the $4 latte at Starbucks to whether we should invest in our employer’s 401K to how much we should pay for a home.
- A daily $4 latte adds up to $21,056 over 10 years
- Investing $1,000 a month beginning at 25 instead of 35 yields $1.75 million more when we retire at 65
- Paying the minimum payment on a $5,000 credit card debt charging 15% will take 27.5 years to pay off at a total cost of $12,517.52
Set financial goals
Figure out what you ultimately want to work toward, whether it’s reducing your debt, being able to afford a new car or home, or having enough savings to retire comfortably. You should set short-term goals as well, such as saving for new furniture or being able to pay for a family getaway. Every time you reach one of your short-term goals, you’ll become more confident that you can also achieve your long-term objectives.
Create a budget
A key part of making good financial decisions is knowing exactly how much money you’re bringing in, how much you’re spending, and where it’s all going. Determine what costs are essential and those that are unnecessary. If you tend to spend a lot on dining out or constantly upgrading your devices, you can cut back on those things and allocate the money elsewhere.
Don't make rash spending decisions
IIt can be hard to take time to consider your options carefully, especially when it’s something that needs to be immediately replaced, like a busted water heater or a broken air conditioner. However, this can result in unnecessary expenses. Do your homework and compare the prices of different options before making a purchase.
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