Financial success in life isn’t an accident, and the phrase “personal finance” encompasses how well you manage your money and plan for the future.
Since no one really knows which way the economy could go next, what you do now, as it relates to financial activities and decisions, will affect your current financial state and the health of your financial future.
Many time-tested words of wisdom offer guidance for how you should save and spend, and you can consolidate all the advice of the financial gurus into several broad financial rules.
Know the Math
The basics of personal finance are that money goes out and money comes in. If this is the extent of your knowledge, you are in for a rough road. Leaving your finances to chance will sabotage your financial future since you won’t be able to accurately determine short or long-term purchase goals.
Knowing the math behind your finances can get you started on the right track.
Start with calculating net worth. This will be the difference between what you own and what you owe. List your assets and liabilities, subtracting your liabilities from the assets. The result will be your net-worth. Though this is your current financial position, net worth may fluctuate over time.
In order to stay on top of the math, you should calculate your net worth at a minimum of once a year.
You can figure out what areas you are showing financial success, you can evaluate your progress on paying down debt, and you can highlight areas that need more focus. By establishing a budget, you make projections on your income and expenses, structuring your payments and spending to achieve a more favorable net worth.
Separate Your Needs From Wants
Constructing a solid spending plan and a budget includes recognizing the difference between needs and wants. Most people don’t have access to an unlimited amount of money, so purchases need to be prioritized. Too often individuals choose to go on a spending spree with borrowed money, engaging in terrible cash-credit management practices.
Rather than always spending, you can both be conscious of your spending as well as make decisions that improve your cash collection. When you live on borrowed money and don’t have the income to support the extra expenses, you can weaken your credit report.
Choosing to spend your money on needs, such as food, healthcare, shelter, clothing, and transportation, is the best use of your funds. Taking out credit cards or loans to make sure you get everything you want leads to a financially dismal future. With Sesame Cash, you can put your money into a bank but also monitor and improve your credit.
The services will help you create a path that can lead to financial wellness. You will have hard decisions on the path to improved finances, but prioritizing your needs and living below your means is a solid start on the road to financial success.
Avoid Lifestyle Inflation
It is a great day when you come home from work with the news that you got raise or took a new position with a higher salary.
Rather than continuing to follow your budget and stash the extra cash into a savings account, most individuals decide to spend more since there is greater availability of funds. This tendency is termed lifestyle inflation.
Even though you are able to pay your bills and buy extra things you want, you are eroding the ability to build wealth. Whatever you are spending now is taking away from you will have in the future. If you have your heart set on an easy retirement without financial stress, your savings need to start now.
You may need to deny yourself a few convenient extras or extravagant vacations now in order to plan for your financial future. Don’t look at what your peers, friends, or family are doing with their money. A wealthy appearance could be masking a mountain of debt. You don’t want to be living paycheck to paycheck. When you get a raise or a bonus, stick to your original budget and put the rest into savings or an investment account.
Alternatively, instead of investing only in traditional assets such as stocks, bonds, and real estate, you may want to consider Bitcoin or cryptocurrencies if you’re tech-savvy and understand how that works.
Understand How Saving and Investing Works
While your future or your retirement may seem like its a long way off, it’s never too early to start saving and investing for retirement.
The benefit of starting early is the power of compounding. With compounding, your initial investment gets reinvested over time. The longer funds are reinvested, the greater the value with the initial investment, often leading to greater earnings.
The math can be a little overwhelming, but in a nutshell, it will be easier for you to decide your financial retirement goal and save a little for a longer period of time than a huge payment for a few years. The interest on the smaller payments can add to quite a large sum over time, actually getting you more for your money.
Have Your Emergency Plan
Unfortunately, a financial crisis can happen to anyone, and expenses can come up that are factored into the budget. A good example is the recent emergence of Covid-19 which has shocked the global financial market including stock, oil, gold, and cryptocurrencies.
Having funds set aside for these emergencies can keep you from having to live on credit. A general rule of thumb is to have three to six months’ worth of living expenses set aside in savings, but a more realistic goal should be a minimum of six months set aside.
Create a monthly expense in the budget for a savings account deposit, and keep adding to it regardless of the minimum recommendations.
Your financial future shouldn’t be put off until you face retirement. By starting now and learning about how the global economy works, you can stay in charge of your finances, and avoid utter failure.
Author: Wilfred Michael