“The only way you will ever permanently take control of your financial life is to dig deep and fix the root problem.”
How do some people save enough money for their golden years, while others end up counting every single dollar? Personal finances jumble up quickly without proper attention. Personal finance is all about managing your money effectively and ensuring better returns in future. Your present financial decisions have an impact on your present as well as future.
Most of the people leave it to the financial expert and seek advice on financial matters. However, you can track and improve your financial health with a little research. The key is to pay proper attention towards your financial resources and expenses.
Important tips to improve your financial health
Evaluate your financial health
There is a lot more to your personal finance than the money inflow and outflow. Contrary to the popular belief, you can draw your financial picture by focusing on some simple figures. Start by calculating the amount you own and your financial liabilities. For some people, it can be an eye opener and alarm to fix their personal finances. You should evaluate your net worth on a yearly basis and find out a room for further improvement. Every financial advisor would suggest you to prepare your monthly/annual budget and keep your expenses aligned accordingly.
Find out your income sources: List down all potential income sources and get an estimate of your net monthly income. Make sure to add everything including salary, wages, tips, bonuses, rents, child support, social security, and retirement income.
List your expenses: In a similar manner, list down your expenses including mortgage payments, housing, insurance, personal expenses, transportation, utilities, child care, education, and every single expense.
You need to take out your expenses from your income and if you have surplus money, invest it or save it as per your wish. Most of the people are habitual towards spending more than they earn and a monthly budget will keep a check on that.
Pay attention towards your lifestyle inflation
According to investopedia.com, lifestyle inflation is defined as “Increasing your spending when your income goes up. Lifestyle inflation tends to continue each time someone gets a raise, making it perpetually difficult to get out of debt, save for retirement or meet other big-picture financial goals. Lifestyle inflation is what causes people to get stuck in the rat race of working just to pay the bills.” While some expenses are reasonable with the personal and professional development, you should try to be reasonable while spending money.
Give it a thought before spending
Do you feel frenzy after stepping inside a shopping mall? Most of the people have a limited budget and it is best to be mindful of spending habits. You need to identify your needs and desires and draw a line in between. However, you might sometime try to justify a wish as a necessity. It is best to seek help and try to discuss it with your spouse. Keep your needs at the top of your priority list and try to save money instead of living from paycheck to paycheck.
Start saving at a younger age
The most important advice you could get about saving is to start as early as possible.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
Compound interest is a powerful income-enhancing tool and it keeps your money at work. There are two tips to boost your original investment: time you give to your investments and re-investment of the accumulated interest. Your earnings are directly proportional to the time of investment, the longer you keep your money invested the higher will be the returns. Compound interest can amplify the earning potential of your money with increasing period.
In the end, the key to successful personal finances is to develop better financial habits with time. Thoughtful investing and saving habits can turn the tide in your favour.