Finances are the prime part of one’s lifestyle after turning 18. It is the age that haunts one to take control of their finances and make important financial decisions. However, most individuals cannot do so. Why?
It is due to the confusion and other aspects that hamper the decision-making process. For example, an individual with no earnings and savings fails to decide the total amount he may need to study overseas. Even if one calculates, he struggles to determine when he can save that small amount comfortably.
Thus, it is natural to encounter a few glitches and obstacles while making financial decisions. What matters the most is taking the most critical financial decisions first. It is because these decisions decide and form the base for your future lifestyle and events.
If you need help knowing the critical financial decisions to make, the blog may help. It lists financial decisions that an individual must concentrate on in his lifetime. These decisions help shape the future goals.
Which critical financial decisions to make for a comfortable lifestyle?
The New Year is here. Even if you have broken a few resolutions, dedicating some time to decision-making is worth it. It is critical when it is about finances. Individuals make multiple financial decisions without considering income and other aspects.
It impacts goal achievement and financial progress. Clarity on goals will help you improve and ease the achievement process. Thus, here are critical financial decisions that you won’t regret later:
Time to start saving and the amount to save
It is the prime financial decision that decides the course of your lifestyle. Having healthy saving habits helps you save a good amount from the beginning. Most individuals have specific goals that help them save at the tender age of 15-17.
Yes, it is the right age to be serious about your finances. However, as a student, you may need help saving enough. It is because you are still a dependent. However, saving only a few Euros or fixed money/ month can grow your piggy bank. You can decide the amount according to your needs and goals.
1. Setting up an emergency fund
An emergency fund is a critical decision that an individual must make early. What if you get unemployed suddenly? How will you counter survival needs for the time being?
Thus, an individual must make an important financial decision by the time he gets his first employment. Whether you are 18 or 25, you must have an emergency fund. A minor contribution of about €1000/month to the emergency account may help you save well for emergencies. It prevents one from a panic-like situation after losing a job or a significant business loss.
2. Start investing in shares/bonds early
While investing in an emergency fund is critical, you must not delimit the possibilities of stocks and bonds. It is a consistent route of creating or building wealth to relish the retirement period. It requires patience and knowledge of the supplies and bonds that yield desirable results.
Most individuals begin investing after 40. However, there may be better ages. This is because stocks take time to mature and yield a return on investments.
Thus, start investing as soon as you get your first job. Yes, starting investing from the age of 20 or 21 is the best way to create wealth for the future. You can begin small initially and invest in less risky equities. The profit may be low, but your investment grows without much volatility. Eventually, update yourself about the best ways to double your ROI safely and build wealth hassle-free.
3. Buying property relative to your income
According to a fact, “individuals aged 23-25 actively seek the best mortgage rates to own a house.” Who does not want to have a property in their name? Everyone does. Thus, most individuals turning 23-25 explore the best mortgage rates to climb the property ladder. However, buying a home is a serious and important decision. One must not tap it unless he is ready.
It implies that qualifying the mortgage requires -20% of the house value as a deposit, a good credit history and income. A mortgage provider conducts a detailed credit check to analyse your affordability and potential to commit for 20-25 years on the legit loan term.
Thus, one must be conscious of choosing the property to buy. Buying a property that you cannot afford is not a good idea. Instead, check the scope of owning one within your capacity. Seek a term where mortgage payments are at most 30% of your total monthly income. Otherwise, it may impact other financial aspects like- car purchases, home renovation, regular bills, etc.
4. The right time to claim retirement funds
It is also one of the most important decisions to make for an individual. Retirement savings make up almost 20% of an individual life savings. However, the interest you get on the funds increases the overall retirement amount. Moreover, individuals applying for the employee pension fund get 10% from the employer as a contribution.
One can either have an individual or employee-based retirement fund. You can dedicate a fixed sum towards retirement funds every month for your entire employment term. For example, if you plan to retire at 45, you must save until 44 to have sufficient cover for your retirement. Generally, the age to claim the pension is 66. Before that, you cannot claim or use retirement funds.
However, if you turn 66 but still have a few months to claim it, you can tap it 4 months before the date. However, according to the recent changes and proposals, “the government may exceed the age to claim the retirement benefits from 66-68 years in the year 2026-2028.” However, there is no written proof of the same until now.
Thus, do not claim before turning 66. Most individuals find it easy, but tapping before the due date may impact the overall interest and money you get.
