Personal finance is not something that just happens. It refers to how you actively manage money and plan your future in advance. In a nutshell, it encompasses all your financial decisions and activities that add up over time and shape your situation. Like it or not, there are no quick fixes to turn your financial health around. This endeavor takes time, commitment and planning. Therefore, familiarize yourself with fundamentals of economics as well as your own financial situation. Do the math to determine your net worth and budget. It is time to make a positive change in your life and take control of it once more.
A comprehensive review
The first thing to do is get a clear assessment of your situation and put it all in writing. Line up your bank loans, credit card debt, monthly expenditures, mortgages, savings, taxes, and investments. Calculate your financial net worth, which is a figure that reflects what you own (assets) minus what you owe (liabilities). Once you know your numbers, you can start working out a financial plan. It should define your savings, budget and investment strategy, as well as money management tactics. In addition, set up realistic, long-term financial goals and then break them down into more manageable bits (short- and mid-term goals).
Addressing pain points
Your liabilities are the problems you want to tackle as soon as possible. Thus, see if you can increase your monthly payments for loans and debts to mitigate the long-term impact on your budget. Bad (non-value) debt, which produces either zero or negative returns, is a particularly detrimental factor. One such example is credit card debt— it only gets more expensive over time and leads to monthly accumulation of interest rates. So, try to pay off the debt with the highest interest and then move on to the next one. Avoid getting charged extra for overdue payments. Check out some of the various strategies for dealing with your debt faster.
Keeping tabs on spending
Monitoring your monthly expenses is the bedrock of your money management efforts. I would suggest using a mobile app to record your daily spending, including all those small payments and receipts. The old-fashioned way would be to employ pen and paper, but that is often impractical. In any event, you need to refrain from impulse purchases and keep online shopping frenzies in check. Also, try to trim the spending for things such as luxury goods, eating out, clothing and entertainment. You should live slightly under your means, certainly not above. That is to say that you might have to make some lifestyle sacrifices, which is always a hard thing to come to terms with.
We cannot stress the importance of planning for the future enough. You may be advancing up the career ladder and earning progressively more, but that will come to an end eventually. So, do not become a victim of lifestyle inflation. Most experts agree that you should set aside 10% of the income per month towards an emergency and retirement fund. Likewise, think about your retirement plan: are you going to rely on professional in-home care, have your family members helping around, join a retirement community, or move to a new country with a better climate and healthcare system? All these scenarios have varying effects on your lifestyle and bring wildly different outcomes when it comes to costs.
Once you have saved enough money, you can also do something with it. Namely, figure out a way to use savings to invest wisely and tap into additional sources of income. Bear in mind that it is best to build a diversified investment portfolio instead of putting all your eggs in one basket. There is no shortage of investment opportunities in this day and age. They offer varying returns and involve different levels of commitment, risk, and knowledge. So, make well-informed investment decisions and improve your net worth considerably. Focus on the future value, not immediate gains. Gain financial independence and freedom for good.
The life project
Improving your finances is a continuous project that requires a great deal of self-discipline, motivation, and perseverance. You also have to master the art of financial planning and management. To get the ball rolling, do your homework: comb through your finances and see where you stand. Forget about back-of-the-envelope calculations and get on top of real numbers. Do not let problems like bad debt pile up and become a major hindrance. Build good habits over time and make wise investments. Increase your ability to build wealth and ensure a bright and prosperous future for you and your family.