Few U.S. high schools have comprehensive personal finance programs, which means that some teens enter adulthood without a deep base of knowledge on topics like investing, budgeting, and consumer debt. Even those who feel they're fairly well-versed in personal finance may find themselves nearing retirement without a solid grasp on certain topics like required minimum distributions or Social Security taxation. But no matter your circumstances, there are some relatively simple steps that may go a long way toward improving your finances.
Know That Little Changes Can Add Up
The thought of saving $1 million for retirement may seem insurmountable, especially if you're just starting out. You don't necessarily need to commit to saving tens of thousands of dollars each year to fund a comfortable retirement. Even setting aside just $100 per month in an investment account may add up over time. Not only does the value of stocks and bonds grow as the years go by, in most cases, but they may also pay dividends, which you may then use to invest in even more shares.
Don't Pay Unnecessary Interest
It may be all but impossible to avoid paying any interest over your life—at least if you spend any time paying a mortgage, auto loan, student loan, or another type of debt. But the interest rate on secured loans (like mortgages and car loans) is sometimes on the lower side, at least when compared to credit cards or paycheck advance loans.
It's important to carefully evaluate the interest rate and terms of any loan you take out to ensure you're not overpaying. You may be able to save up cash for a larger down payment to reduce the amount subject to interest. You could also take steps to improve your credit score, so the interest rate you're offered is potentially a lower one. By reducing the amount of interest you pay, you may free up cash for other purchases or to set aside for a rainy day.
It's Important to Think Long-Term
It can often be easier to prioritize short-term comfort or entertainment over long-term security. After all, if you're deciding whether to spend $1,000 on a vacation or set it aside in a retirement account, the mental picture of you having fun on a trip tends to be far more vivid than imagining a comfortable retirement. But just like eating a steady diet of fast food can leave you nutritionally depleted, living a financially undisciplined lifestyle can leave you scrambling for security when you need it the most.
Make sure you're paying yourself first—setting aside the funds you need for an emergency or other unexpected expense so that you're not taken by surprise. This can help you avoid incurring consumer debt or taking other actions that may risk your long-term security.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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