Managing your money successfully is a major factor in being financially successful. Consider this: there are people who worked at a mid-level job their entire lives, saved a good portion of their income, dutifully contributed to their retirement and were able to retire as millionaires. Concurrently, there are people who work high-paying jobs with massive bonuses who end up with nothing saved and no way to retire. What’s the difference? One managed their money well; the other did not. The key to being financially successful is not how much money you make, but how well you manage it.
Here are some simple things you can do right now to improve your money situation:
First Things First: A Few Financial Basics
Create a Financial Calendar
If you don’t trust yourself to remember to pay your quarterly taxes or periodically pull a credit report, think about setting appointment reminders for these important money to-dos in the same way that you would an annual doctor’s visit or car tune-up. A good place to start? Our ultimate financial calendar.
Check Your Interest Rate
- Q: Which loan should you pay off first?
- A: The one with the highest interest rate.
- Q: Which savings account should you open?
- A: The one with the best interest rate.
- Q: Why does credit card debt give us such a headache?
- A: Blame it on the compound interest rate.
Bottom line here: Paying attention to interest rates will help inform which debt or savings commitments you should focus on.
Track Your Net Worth
Your net worth—the difference between your assets and debt—is the big-picture number that can tell you where you stand financially. Keep an eye on it, and it can help keep you apprised of the progress you’re making toward your financial goals—or warn you if you’re backsliding.
Managing Your Income
Managing your money successfully start with your income. It sounds simple, but the key to success in this regard is to spend less than you earn. If you can do that, you can begin to build success through saving and investing your money. However, that is not always as easy as it sounds, and the key to doing it is budgeting successfully. A budget is more than a list of categories and amounts for your money. It is your monthly guide and your plan to help you reach your goals.
How to Budget Like a Pro
Set a Budget, Period
This is the starting point for every other goal in your life. Here’s a checklist for building a knockout personal budget.
Consider an All-Cash Diet
If you’re consistently overspending, this will break you out of that rut. Don’t believe us? The cash diet changed the lives of these three people. And when this woman went all cash, she realized that it wasn’t as scary as she thought. Really.
Take a Daily Money Minute
This 60-second act helps identify problems immediately, keep track of goal progress—and set your spending tone for the rest of the day!
Allocate at Least 20% of Your Income Toward Financial Priorities
By priorities, we mean building up emergency savings, paying off debt, and padding your retirement nest egg. Seem like a big percentage? Here’s why we love this number.
Budget About 30% of Your Income for Lifestyle Spending
This includes movies, restaurants, and happy hours—basically, anything that doesn’t cover basic necessities. By abiding by the 30% rule, you can save and splurge at the same time.
Detail Your Financial Goals
Take some time to write specific, long-term financial goals. You may want to take a month-long trip to Europe, buy an investment property, or retire early. All of these goals will affect how you plan your finances. For example, your goal to retire early is dependent on how well you save your money now. Other goals, including home ownership, starting a family, moving, or changing careers will all be affected by how you manage your finances.
Once you have written down your financial goals, prioritize them. This ensures that you are paying the most attention to the ones that are of the highest importance to you. You can also list them in the order you want to achieve them, but a long-term goal like saving for retirement requires you to work towards it while also working on your other goals.
Below are some tips on how to get clear on your financial goals:
- Set long-term goals like getting out of debt, buying a home, or retiring early. These goals are separate from your short-term goals.
- Set short-term goals, like following a budget, decreasing your spending, paying down or not using your credit cards.
- Prioritize your goals to help you create a financial plan.
How to Shop Smart
Evaluate Purchases by Cost Per Use
It may seem more financially responsible to buy a trendy 5 shirt than a basic 30 shirt—but only if you ignore the quality factor! When deciding if the latest tech toy, kitchen gadget, or apparel item is worth it, factor in how many times you’ll use it or wear it. For that matter, you can even consider cost per hour for experiences!
Spend on Experiences, Not Things
Putting your money toward purchases like a concert or a picnic in the park—instead of spending it on pricey material objects—gives you more happiness for your buck. The research says so.
Ever have a friend declare, “That’s so cute on you! You have to get it!” for everything you try on? Save your socializing for a walk in the park, instead of a stroll through the mall, and treat shopping with serious attention.
Spend on the Real You—Not the Imaginary You
It’s easy to fall into the trap of buying for the person you want to be: chef, professional stylist.
Managing Your Savings and Investments
They say you should always pay yourself first, and that applies to building your savings and investment portfolio. There are two different types of savings: your liquid savings and your investments.
Investing is a beneficial way to save because it actually earns you money and increases your wealth. If you do not know a lot about the stock market and investing, then it can be really helpful to have a financial advisor help you manage your investments.
Investments may be harder to get to during an emergency, and you may not want to be forced to cash them in if the market down when you need them. That’s where a liquid savings account comes in. Your savings account should contain your emergency fund and should be easily accessible in case of an emergency. You want to be able to access your savings fairly quickly if needed, but you also want to earn the best possible interest rate.
You Can Have Too Much Savings
It’s rare, but possible. If you have more than six months’ savings in your emergency account (nine months if you’re self-employed), and you have enough socked away for your short-term financial goals, then start thinking about investing.
Be Prepared for Financial Emergencie
Only dip into your emergency savings account if you’ve lost your job, you have a medical emergency, your car breaks down, you have emergency home expenses (like a leaky roof), or you need to travel to a funeral. Otherwise, if you can’t afford it, just say no.
Plan Your Retirement
When it comes to retirement, it can be difficult to know what to expect. Moreover, some unexpected changes in circumstances could mean disaster for your retirement savings and your plan overall.
A financial plan is absolutely essential in helping you reach your financial goals. The plan should have multiple steps or milestones. A sample plan might include creating a monthly budget and spending plan, then getting out of debt.
Once you’ve accomplished these three things and have followed through on your new plan for a few months, you may find that you have extra cash and then to decide what priorities are most important to you. Keep steadily working toward your long-term retirement goals, but also start to focus on the most important near-term goals you have set for yourself.
To Summarize, when creating a financial plan, remember these things:
Your budget is key to success. It is the tool that will give you the most control of your financial future. Your budget is the key to achieving the rest of your plan.
You should keep contributing to long-term goals, like saving for retirement, no matter what stage of your financial plan you’re in.
Building an emergency fund is another key factor to financial success and stress reduction.
“Assess the requirements, Explore the opportunities and Implement the changes and Succeed – Sky is the limit”.
If, you are a newbie and have some questions- ask me in the comments…
If, you’re an expert- share your secrets with me in the comments…
THANK YOU !!!