What you put your attention on grows. Getting good with finance is a journey and takes time so the first step is to appreciate that small steps over time is what is going to make the biggest difference for you and your finances.
Below we have 7 ways you can improve your finances, the first step is to take just one and commit to making a change today.
Creating a budget and sticking to it is one of the basics of successful personal finance. Your budget is a road map for how your money will work for you each month. Even a simple budget listing income and expense is a place to start. Graduate to a more complex daily budget as you get more familiar with how your finances stack up. When you are on a budget, each purchase requires that you stop and think before you spend.
You begin to have a more realistic picture of how much money you have and, more importantly, how much is left over. Ideally, with your surplus budget, you can save for retirement, build up a fund for emergencies, or pay down any debts you have. There are free online tools like Toshl which can help you set your budget & stick to it.
- Trimming Expenses
After you have a basic recorded budget, you will begin to see a pattern of expenses and possible areas that could be trimmed. For many people, this can be simple things that add up over a month’s time and would not be missed if they were less frequent or eliminated.
Other people may need to take a closer look and make deeper cuts to realize more cash for financial goals. One example of a small budget trim is to cut down on subscription services or memberships you do not need or do not really use. Larger cuts could be a mortgage refinance or reducing spend in an entire category such as dining out.
- Eliminate Debt
Now that you have a budget you can stick with, and have cut some impressive expenses out of the mix, do you still have debt to get rid of? Keep in mind that it is not a bad thing to use credit, but make sure you can keep up with the payments and never borrow more than you are comfortable with paying back.
Getting out of debt because of high interest rates can be handled simply by paying off more than the minimum amount due each month. Refinancing or consolidating debt to get out from under the burden may be a necessary next step for those who find themselves with too much.
- Save, Save, Save
Retirement is closer than you think, and nobody is ever ready for it financially, especially with fewer and fewer companies offering pension plans. It has become more important than ever before to plan for retirement by saving money. Unfortunately, younger people are often too busy and think retirement is too far away to worry about.
If you delay saving until you are closer to retirement, however, you are missing out on compound interest as well as some tax advantages. If you are not saving for retirement yet, revisit your budget and make room, as it should be a priority instead of an afterthought.
- Defend your wealth with Life Insurance
You are on the right track, with a firm budget, low debt, saving as much money as you can for retirement, so what else is there? Life insurance is where you should look next, in order to protect what you have built for your family. Term life insurance covers a set period, while whole of life types of insurance cover you until death.
You may wonder what type is right for you, and that is when you should visit a good source for information like Money Expert, where you can compare life insurance types and decide on which policy fits your life and your budget.
- Invest Wisely
Follow three principals when investing; diversify your portfolio, keep your costs low, and recognize the correlation between risk and reward. Go with index funds that are made up of hundreds of stocks, which removes the risk of any one stock wiping you out.
- Smile & Keep going
Building your portfolio of cash, debt, equity, investments, insurance, and the like can be simple for many people, as it is just simple maths. The psychological side is where many people find it hard, but sticking to the plan to reach your goals is the right thing to do. You have to be in it for the long haul or you have no chance of making a financial plan work.
We hope you find these seven tips on pre-planning your finances useful. From budgeting to managing your debt, think of the future by saving for retirement and finding affordable life insurance. Plan on staying organized for the long-term and you will thank yourself later.