By: Hong-An Phan
‘New year, new me.’ With the coming of 2024, billions of people around the globe have begun setting goals for themselves in order to better their lives in a variety of manners. For some, this could be eating healthier, or for others, it could be minimizing screen time. Similarly, the dawn of every new year often sparks a determination to achieve financial stability and growth.
While the phrase ‘financial success’ is an ambiguous statement interpreted differently depending on age, occupation, and income, there are three core habits that are manageable for savers with different experiences and lifestyles.
The first is: budgeting. U.S. Senator of Massachusetts, Elizabeth Warren, coined the “50/30/20” rule in her novel, All Your Worth: The Ultimate Lifetime Money Plan, written alongside Amelia Warren Tyagi in 2005. This technique utilizes the allocation of income into three categories: 50% for needs, 30% for wants, and 20% for savings. Funds dedicated to needs should cover essentials in day-to-day living such as housing, healthcare, groceries, and utilities. Activities and leisure spending receives 30% of an individual’s income. The final 20% is assigned to savings, which are funds meant to cover any emergency events, retirement, or debt.
Savings, however, can also be used strategically. This second habit is: making money off of your money. Although this phrase might raise skepticism, there are modern strategies to raising your income with your savings. A common one that has recently been recommended by many finance experts is the usage of a high-yields savings account. These accounts are defined by their higher annual percentage yields (APY) which are the return rates of investments. High-yield savings accounts can have anywhere between a 4.6% to 5.25% APY.
The second savings strategy is investment. Although investment is often deemed too high-risk for the rate of returns, there are many lower-risk options that have been recommended by credible investors. For example, Warren Buffet, the American investor and CEO of Berkshire Hathaway, has notably encouraged the consistent purchase of “an S&P low-cost index fund.” The S&P 500 is a grouping of the Standard & Poor’s 500 Index. Investors purchase shares of a portfolio of stocks- a practice that offers low risk due to its lack of dependency on a single company’s success.
Finally, the last habit is to practice mindful spending. With overconsumption habits being promoted in society through fast fashion and social media, many unnecessary purchases are made by irresponsible spenders. It is necessary to recognize that quantity will not take the place of quality- and every purchase is an investment that has the opportunity to benefit your quality of life.
Sources:
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