Unless you have a strategy, your finances are not going to improve. Building a good financial game plan is essential. Otherwise, You will not make any progress. Luckily, learning how is not that difficult. As long as you’re willing to put forth the effort, you can build a brighter future.
This Year’s Top 5 Tips to Manage Your Finances
You should always be asking questions. For example, what is insider trading? As soon as you encounter something you don’t know, find out the answer. That way, your knowledge is continuously growing. Ultimately, knowing what to do is half the battle. The following tips should provide you with a solid base of knowledge.
Do Not Take on Debt
First, avoid debt at all costs. At least, do not take out unproductive debt. When you finance purchases, you pay more in the long run.
You Want to Earn Interest, Not Pay It
All debt carries an interest rate. The interest rate determines how much extra you pay the lending institution. If you want to build wealth, eliminating interest payments is essential. On the contrary, you want to earn interest through your investments.
Debt Is Ok in Certain Situations
Once you get better at avoiding debt, you can take out some. Only finance purchases that either increase in value or generate revenue. The easiest example would be a rental property. Sure, you might need a mortgage. However, the income from your tenant should be more than enough to cover the monthly payment.
Become a Business Owner Instead of an Employee
Running a business is the best way to make money. As the business owner, you set the wages for all of the other employees. Would you pay an employee more than they earn the company? Not to mention, there is no income ceiling for a business owner. On the contrary, employees have much lower income potentials.
Quit Wasting Your Money on Unproductive Purchases
How you spend your money is equally important to the amount you earn. Consider some of the professional athletes who end up broke. Most of the time, they have higher incomes than nearly everyone. Nevertheless, they show us how easy it is to spend yourself into oblivion. An easy rule of thumb would be to sleep on any impulse purchases. Within 24 hours, you should have a good idea of how necessary that purchase really is.
Invest Your Money to Increase Your Earnings
After eliminating impulse purchases, you should start to accumulate some savings. Investing your money is vital. That way, your money generates even more income. Plus, your investments will be earning even while you are asleep. We recommend building a diverse portfolio. That way, you have a hedge against any potential market downturns. Eventually, your investments can earn enough money for you to retire.
Build an Emergency Fund
Of course, everyone needs to have an emergency fund. Generally speaking, an emergency fund should be enough money to cover all of your expenses for three to six months. Besides the peace of mind, it gives you an extra layer of protection. Should a surprise expense occur, you won’t have to go into debt to cover it. Thus, an emergency fund makes it much easier to avoid unnecessary debts. Suppose your car got a flat tire. Most people have to drive to work. Without an emergency fund, you would be forced to put it on a credit card or take out a loan.
Building a Better Future With Your Finances
Don’t get frustrated if building wealth takes more time than you expected. Everybody has to start out somewhere. Remember, the more money you have, the easier it is to earn more of it. For example, let’s say you want to save up $1 million. The first $500,000 takes much longer for you to accumulate than the last. As you amass more and more wealth, your investments will generate even more income. Eventually, they should be earning even more money than you do at your day job. At that point, you are financially independent. It is important to note; you won’t get there without actively working towards that goal.
Veeramachineni Lalitha
I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. My experience details : Linkedin