To preface this topic, something important that we should all realize is that wealth and financial success are relative to age. For example, a 22-year-old who is a millionaire is much more financially successful than a 65-year-old millionaire. How much financial success varies with age because older individuals have much more wealth than younger individuals on average.
But in any case, achieve financial success in youth is the dream of most people right? Imagine the lifestyle: achieve financial success and security in your twenties, live it up for a while, and go into retirement and live a nice rest of your life after you’re thirty. Sounds too good to be true right? And it honestly is since only a small proportion of people in their twenties can really be considered ultra-rich.
But that shouldn’t be a reason or an excuse that you use to discourage yourself from trying. With the right money management tips and business sense, anyone can achieve a moderate degree of financial success when they are young – even if it doesn’t place them in the top 95th percentile of their age bracket. Here are some of the financial fundamentals and useful habits to put you on the right track.
Prepare for the Unexpected
Ironically, I think that the first step towards achieving financial success has to do with avoiding financial ruin and being very cognizant of unforeseen and unexpected expenses. The sheer opposite of financial success is not having any financial recourse after getting into a car accident, receiving an injury during a basketball game, or simply being fired from your job. These unexpected circumstances are all very realistic and common. However, despite the fact that most people are aware of these expenses, it’s a common situation that young people who don’t plan ahead may become mired in debt as a result of an expensive hospital bill or car wreck.
Therefore, anyone seeking to be financially successful when they are young needs to consider establishing a monetary safety net in the form of an emergency fund that can last you three months. Of course, an emergency fund doesn’t simply just appear out of thin air – you’ll need to put a significant effort into creating a budget and sticking to it in order to make sure that you have money left over to store into a savings account each month. Programs such as You Need A Budget (YNAB) can really help you lock down those healthy financial habits.
Doing other types of thrifty things like abstaining from eating out and meal prepping every week can also drastically cut your expenditures so you have an income to spare for your emergency fund. As it happens, planning ahead is absolutely vital to financial success at any age.
Make Sure You Build Stellar Credit
Credit can open a lot of doors, but it can also close off an equal amount of opportunities for you depending on how good your credit scores are. It’s important to really treasure your credit score because you need good credit to make major life purchases such as a car or house. Major financial milestones are things that signify one’s financial success and this fact shows the relationship between financial success and credit.
Your credit score comes in many flavors – FICO, Experian, TransUnion, and so forth – but its determinants usually consist of five key tenets. Your payment history, credit utilization ratio, whether you pay your debts on time, a mix of credit accounts, and the number of lines of credit you’ve opened in the past few months all count towards the cumulative value of your credit score.
However, besides knowing these basic determinants it’s also crucial to know how you can get rid of past offenses like a charge off. What is a charge off? According to Lexington Law, charge offs are a type of credit indicator that you haven’t been responsible with your money. They usually occur after six months and a charge off is essentially a signal to credit reporting agencies that the financial institution that originally loaned you the money believes that they will not be getting the money back.
Making sure your credit is squeaky clean by being responsible but also being shrewd when it comes to protecting your credit will be essential as a foundation for your financial success both as an individual or as part of a business.
Investing and the Future
Once you have a safety net and great credit, the next step is for you to invest, and to make sure you have money saved for your major life events.. Really, there is no real “one size fits all” explanation for how you can achieve massive financial success after you got all the fundamental parts down. What it comes down to afterward is how you invest – both with regards to your financial resources and with regard to how you invest in yourself in sharpening your own skills.