Personal financial management is one of the most important, yet ignored topics that need more attention. It is primarily because it is an intimidating topic that most people refrain from going in-depth. What you do with your money today decides your tomorrow.
Financial or retirement goals cannot be achieved unless there is a strategy backing it. While you might be doing a few things right, there might be scope for improvement. Unless you analyze your present financial status, it would be difficult to develop a plan that paves the way for a better financial future. It is what brings us to the first of five golden steps you can take to upgrade your financial position.
Technically Analyze Your Financial Status
In other words, take out time from your schedule and do the math. Make a list of your assets and liabilities to know your net worth. If you don’t know how to decipher net worth, simply subtract the liabilities from assets (valuation). The figure you arrive at after subtraction is your net worth. It helps you identify the problem areas in your financial activities as well as lifestyle.
Doing a yearly budget would help you note your growth year after year and keep things in perspective as far as finances go. One of the crucial aspects of analyzing financial status is budgeting. It plays an instrumental role in achieving your short-term and long-term financial goals.
Budgeting depends on financial projections of income and expenses. If the income exceeds expenses, you’ve surplus money that you can save or invest. If expenses are on the higher side, it requires you to revisit your lifestyle and expenses and see where further cost-cutting can be done.
Keep Lifestyle Inflation in Check
We spend more when we earn more. It seems like a natural progression, but it isn’t. It is a phenomenon that is widely termed in financial circles as “lifestyle inflation.” As you evolve professionally and personally, there can be certain changes like hiring more help at home or a chauffeur or a yearly overseas vacation.
However, do not jump into the bandwagon to match the lifestyle of others around you and spend on things you can’t really afford. Stick to your financial strategy, and don’t let peer pressure ruin your financial future.
Start Saving Early
Spending mindfully means understanding the differences between needs and desires. You might need a new car to commute to and from office, but spending mindfully means buying a car that fits your budget vs. buying a car that disturbs your entire year’s finances which is easier to do in this low tax environment and will be even easier to do when we have a vaccine for the Wuhan virus. Don’t spend on what you want but focus on what you need when pulling out your wallet or signing on that dotted line.
Ask yourself, can I live without spending on this? If the answer is yes, then it falls in the category of ‘wants,’ and you might need to reconsider your decision to spend on it. When you don’t spend mindfully, you spend more than required on wants and may fall short for what you need. It pushes you into the vicious circle of debt.
Start Saving Early
It can’t be pressed enough how important it is to start saving early. While it is never too late to start saving, sooner you start, better are your chances of achieving your long-term financial or retirement goals comfortably. People who start saving much later into their life may find it difficult to plan their retirement as no matter how much they save.
It doesn’t add up to a figure that offers peace of mind within the limited time they have before retirement. It then requires uncomfortable lifestyle compromises to secure your future that ruins your present as well. Start saving early to create a financial buffer that cushions your retirement plans and gives wings to your long-term financial goals.
Create an Emergency Fun
Life is uncertain, and an emergency can strike anytime. Whether it is a medical emergency or if your car needs immediate repairs, the situation requires you to spend money that wasn’t part of the plan or your budget. An emergency fund is created to meet such unforeseen events without letting it disturb your financial equilibrium.
It would be ideal that you keep at least six months’ worth of living expenses in an emergency fund, but you should try to add more whenever possible. Restraining yourself from touching this fund for lifestyle expenses or wants can be an ongoing struggle, but you need to train yourself to make the right decisions with your money.
Discipline and commitment are two pillars that would help you achieve your financial goals and pave the way for a financially fulfilling life. Building habits that ensure you stay away from unwanted expenses and constantly look for ways to add to your savings and investments is what will bring you closer to living your dream life. A penny saved is a penny earned is a mantra to live by when it comes to upgrading your financial position.