Unless you’re a finance professional, you probably get frustrated with all the financial advice coming in from different corners. While a lot of it bears similarity, it can be overwhelming for the average person who just wants a simple way to manage their finances.
Should you spend a couple of hours studying the investment market because you’re interested in adopting a sound investment plan? How do you ensure that your money is always working for you without getting obsessed with the how? Turns out you only need to follow a few clear guidelines about money. If you spend what you haven’t earned yet, you’ll be in financial doldrums, for instance. If you’re judicious about how you spend your money, you’ll soon walk into financial nirvana.
It all sounds simple, so why do so many of us struggle? Because we’re trying to understand all the finance-speak used to explain simple principles and understand complex formulas which we’d grasp in a minute is they were a little simplified. We’ve broken down all the best financial advice into bite-sized nuggets that you’ll remember. We also show you how to apply each of these principles in your life to begin reaping the rewards of financial freedom.
Save Some Money Every Month
Financial planners advice you to save at least 10% of your monthly earnings and aim to grow it to 20%. This only works if you’re earning enough to sustain your monthly expenses. If your income isn’t enough to get you through the money, it’s impossible to have any savings.
The only way around this challenge is to find an extra source of income. A second job, a part-time job, a business on the side, a weekend side-hustle, an online business – all these are avenues that will bring in some extra cash, which you can then use to pay off your bills and put some aside as savings.
As you do this, you realize your earning power increases and you’re in a more stable position to make better decisions about your money. When you’re not constantly thinking about where to get money to pay off this and that bill, your mind clears up and you become empowered to be smarter.
The second scenario involves the individual who earns enough to pay all the monthly bills, keep aside some cash for emergencies and actually have some money left. Saving 10-20% of income consistently in this case becomes a matter of discipline and not availability. If you’re not disciplined, you will find other ways to spend that 20% that could have gone into your savings account.
The third scenario features the individual who earns enough but tends to spend all their money by end of the month. They’re not struggling to fund their lifestyle, but they’re not taking steps to create a financial safety net either. The problem here is that you’ve not worked out what the priority is. You’re probably spending a lot of money on things you can do without. Identify the unnecessary things sucking up your money and cut them from your budget. And there you’ll have your 20% for savings.
Some things we spend money on but can do without include:
- Expensive home furnishings. Replace with cheaper options.
- Expensive clothes and accessories. You can look just as good on a budget.
- Unnecessary kitchen gadgets. If you don’t use it a couple of times each week, you don’t need it.
- Costly car customizations. Do you really need all the custom features especially if you’ll replace the car in a couple of years?
- Unnecessary furniture.
- Expensive cable plans. In an era where most things are available on the internet for free – or at minimal cost – there’s no point in paying so much for TV. If you need cable for your kids or someone elderly in the house, get the cheapest plan. Alternatively, consider plans that bundle cable with your internet and phone service so that you’re not paying extra.
Swap Short-Term Investment Plans for Long-Term Ones
Short-term investments are often painted as a quick way to riches. This does happen in some cases, but most of the time, these kind of investments are a gamble and will leave you nursing huge losses. If you must invest in individual stocks on the short term, invest a small amount of money that you wouldn’t mind losing.
This is easy to say and hard to do. It gets worse if you enjoy a winning streak on your first few attempts, which convinces you to keep adding more money into the system. You can see it’s working. You’re getting all these good returns. Then one day it doesn’t work. The stock value dips and with it goes your money.
By its nature, the stock market is meant to fluctuate between high prices and low price. Since you can’t always tell when prices may fall or rise, you never know for sure when to buy or sell. This volatility and unpredictability makes them a high-risk venture for anyone who is serious about building a strong financial portfolio.
Instead of buying individual stocks, invest in indexed funds. These are in the form of indexed-mutual funds and exchange-traded funds. Indexed funds are more secure because they only follow the long-term performance of a particular market index. Even if fluctuations happen along the way, the index will recover in time and build a solid trajectory of good performance and profits as the business expands over the years.
Pay off Credit Card Debt
The credit card is useful in many ways, we agree, but it can quickly enslave you and keep you wrapped up in the tentacles of debt. If you must use your credit card, always stay within your limit and pay off your entire balance every month. You’ll need to be disciplined to stick to this. It’s easier to just swipe the card and sort the payments later.
Trouble is: Repayments come with hefty charges, which can quickly add up to $1000 or more a year. Every time you take out your credit card to make a payment, remember you’re spending money you don’t have yet. Learn to pay in cash and only use your credit card when it’s absolutely necessary.