The old saying “money can’t buy happiness”, can be quite a debatable statement. In reality, money is important in every area of your personal life, not only for survival terms but also to improve yourself and make sure you’re not in this world just to pay bills and barely survive, till the end. There’s no harm in saying that you dream for a more luxurious life. That’s actually what motivates most people, but you need to make sure of one thing: savings won’t multiply your money, but investments will.
Let’s start by focusing on your personal finances. The way you manage them is the first step for a more organized, sustainable and planned future. All of your financial decisions and activities have an effect on your financial health, as well as sparing you crazy amounts of stress on your future. With small efforts and intelligent investments, there are some tips you can use that will improve your personal finances and ensure a sustainable future. So, without further delay, here are some strategies that could deliver a favorable return.
1 – Manage your budget
Always keep track of where your money is going! Evaluate and analyze your net worth frequently – your personal ‘net worth’ is the representation of where you stand financially, by calculating the difference between what you own (your assets) and what you owe (your liabilities), with your monthly earnings also being an important factor. This will help you evaluate your progress and highlight the areas which require improvement.
Start by creating a personal budget, to figure out your expenses and prioritize your spendings. A personal tip – categorize your expenses, (such as education, food, housing, transportation or utilities) and income (alimony, bonuses, child support, disability benefits), as it creates a more organized process. Then, subtract your expenses from your income. If you have money on the plus side, you have a surplus, and you can decide on how to spend that money – save it, or invest it. However, if your expenses exceed your income, you’ll need to adjust your budget by increasing your income (adding more hours at work or picking up a second job) or by reducing your expenses (maybe cooking more often at home, or start using public transportation.)
2 – Savings
Hope for the best, but prepare for the worst. Even if you’re not much of a saver, you should have a safety SOS net for emergencies, able to cover your expenses for at least three months. Life is unpredictable, so always assume that your life could make a hard right for unknown territories. If something does go wrong you won’t have to immediately resort to maxing out credit cards or emergency loans with punishing interest rates.
For starters, begin saving for your retirements as soon as possible – reinvesting your earnings can be quite a method of doing that. The longer the investment is going to last, the greater the return. This is due to the power of ‘Compounding’ – the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. Hypothetically, the longer earnings are reinvested, the greater the value of the investment, and the larger the earnings will be. It’s the most successful way to achieve long-term financial goals, as the sooner you start, the less you’ll need to save each month and, consequently, the less you’ll pay overall.
3 – Manage Lifestyle Inflation
Lifestyle Inflation can be explained in just a few words – the more you earn, the more you spend. As people advance in their careers and earn higher salaries, there tends to be a corresponding increase in over-spending. If you spend excessively, it will damage your long-term financial wealth. Even if you’re able to pay your bills this month and lead a more luxurious time, lifestyle inflation can be damaging in the long run of building your financial empire. Spending is normal to enhance your social or professional environment, but extravagance is not a positive indication, at all!
4 – Spend Mindfully
Make sure you identify your needs and your wishes. Draw a line between them so you can make better decisions when it’s time to spend money or invest it. Needs are the primary thing you must keep in mind and should stand on top of your personal budget. I’m talking about basic survival (food, shelter, healthcare, clothes, transportation, etc…) Wishes are your desires, things that are not required for your survival. Make sure that your choices are clear. For example, you could try and call the SUV a “need” because you do, in fact, need a car, but it’s still a wish. You can always opt for a more practical car.
Once your needs are satisfied, then you can consider the possibility of achieving some of your wishes. But if you have any leftover cash by the end of every month, think really carefully if you need to spend it, or save it.
5 – About Emergency Funds
You never know what might happen. An emergency fund can help you deal with things like your car breaking down, someone you love getting seriously ill or even more superficial things, like arriving in a stunning new dress or suit at a summer’s wedding. The point is, you never know.
Once a disaster strikes and there are suddenly some heavy unexpected bills to pay, you can find yourself in a deep financial hole. There are plenty ways to build an emergency fund, but here are some of the most popular ones:
- Sell some of your junk, and some of your valuables – things you don’t need right now, or are standing in your garage for way too long, that can be really handy for other people. Look at some of your valuable items that don’t have a lot of emotional value for you – things like paintings, home décor, jewelry, among others.
- Make a big shopping run only once a week. By adopting this method, you’ll be able to control your ‘needs’ and, consequently, your spendings, more carefully.
- Avoid overpriced big-name brands. There are other brands as good as the ‘big’ ones, at much more reasonable prices. Don’t get too attached to trends.
- Look for another job or do some ‘freelance work’, as it can provide you some other source of income.
- Monetize your hobby! Another way to save some extra money is by choosing other types of hobbies, maybe some more profitable. For example, you may teach other people how to sing or play piano, or even pick up a new hobby that’s already directed to financial gains, like Stock Trading. I know that the stock market looks like a complex monster to the majority of people, but in reality it can be learned like any other business. You can take a look at these if you’re interested in discovering the best stock trading apps, on the market, of 2020.
It All Comes to…
Financial rules! They can be excellent tools for achieving success. It’s important to build habits that will help you achieve high financial wealth not only for you, but for a future family to come. Balancing savings for emergencies with your other financial priorities is of the utmost importance. This doesn’t mean you can’t have some luxuries now and then, as long as they are mindfully managed. Lastly, remember that the more financially comfortable you are, the less you need to stress out about your future, and a better life you can provide your kids with. Thanks for reading!