Let’s guess. You are neck-deep in debt. Your financial future has not yet been secured. Or you are not where you want to be financially and striving to reach certain financial goals. Whatever the case may be, managing your finances effectively is very important for both now and the future.
Unfortunately, this is not something that is being taught in many schools. That is why we put together these 5 simple finance hacks to get you started on your financial journey and grab useful answers to frequently asked questions on investment.
Analyze Your Financial Goals
Identifying your financial goals is the first step towards making them happen. Whether you are planning to clear up your student loans or you are trying to build up a retirement nest egg. Maybe you are trying to save up for kid’s college.
Understanding the reason behind your financial decision will set you on the right track to success. These can be short-term, mid-term, or long-term financial goals. Set up goals for each category that will motivate you to go forward to realizing them.
Have a Budget
Effective personal finances management starts with budgeting. Budgeting serves as a plan that helps track your income, keeps spending in check, and ensures you are saving.
For this, list all the income you generate in a month. This might be from your 9-5 grinding, side hustles, business, bonuses, and incentives.
Figure out your spending habits to see where your money is going. These can be utilities, groceries, house rents, transportation, insurance, student loans, gym membership, internet subscriptions, and other expenses.
You can adopt the 50/30/20 Method wherein 50% goes to the necessities, 30% is for wants or personal expenses and 20% goes to savings and debt deductions.
To make this work, you might need to adjust your lifestyle to cut down expenses and save more.
Stay out of Debt including Credit Cards!
Debts are something that does not only take away our peace of mind, but they are also like parasites that tend to eat up finances. That is why it needs to be avoided or controlled.
From student loans to mortgages to credit cards, being in debt can seem inevitable but you can always get out of it with the right steps.
To go about this, list all your debts from the lowest interest rates to the highest. Then, clear up debts by starting with the loans that carry the highest interest rate. This is called Debt Avalanche.
The other option is referred to as Debt Snowball wherein you cleared the debts from lowest to highest no matter the interest rate.
Another thing is to stay away from credit cards as much as you can. For one, they carry insanely high-interest rates and can promote impulse spending. Moreover, accumulating credit card debts can lower your credit ratings.
If you must use credit cards, always endeavor to pay the full balance monthly. Plus, keep track of your credit score and credit reports regularly.
Get Your Money Work for You
To reach important milestones and achieve your financial goals, it is important to put your money to good use to generate more income. Therefore, instead of your money lying waste, put them into high-yielding savings account for it to accumulate over time.
Investing is another excellent option that can help you build wealth and gain financial freedom. When you invest, your money grows through the increased value of the thing invested in. Besides, you can also get paid by dividends which serve as the stream of income.
While investing, make sure to diversify your portfolio to minimize risks and boost returns. Your options include stocks, mutual funds, bonds, real estate (to mention a few).
Save up for Emergencies and The Future
Taking hold of your finances also includes saving up for the future to enjoy greater financial security in life. Plus, it is imperative to save up for “rainy days”.
Therefore, create an emergency fund that you can always fall back on when something unexpected happens. To get this done, you can automate your saving account for the transfer of money for times of emergencies.
Another thing to consider is to build a solid retirement plan if you want financial stability in your golden years. A good rule of thumb is to save up to 10% to 15% of every paycheck in retirement funds.
Use these 5 life-saving hacks to manage your finances and be on your way to financial success. How do you manage your finances? What are the ways you have planned to put your money in high return investments? Do share your thoughts and ideas below.
This is a guest contribution by Harleen Kaur, a Chartered Accountant, a finance enthusiast and a passionate blogger running a personal finance blog @ Fintrakk.com sharing knowledge and simplifying things in the field of finance and investment for the common man.