When I was going through my personal finance dilemma, I always wondered how others seem so stable financially. What things are keeping me away from that sweet financial freedom? All I wanted was to be just like them, and it was that burning urge which made me follow some really effective financial decisions in my life. Unlike before, where my money used to make decisions for me, now, I am the one who is in control of my money.
Today, I am going to let loose the secret of my journey and how I overcame my horrifying financial situation.
The Secret – Don’t allow yourself to deviate from the set tasks when following the pattern of financial freedom.
Following are the 4 personal finance tips that inflicted a major improvement in my finances and helped me overcome my pitiful financial situation. Remember, nothing is impossible. Let’s get started.
Track Your Spending
It all starts with the most important personal finance tip – Track your spending. There are no hard & fast rules to do this, you can do this however you want. The only thing you want to ensure is that it works for you.
For instance, putting together a budget and tracking all the monthly spendings can work like a charm for some people. Whereas for others, focusing on particular categories, such as eating out or entertainment where they spend most of their money can be more of a practical choice.
However, my suggestion is that you should try to create a yearly budget if possible. Why? The reason is simple. Odds are you don’t have any idea where your money is going and even if you aren’t facing any problem paying your bills, following a budget can prove to be an eye-opening process.
This might have a surprise for you, showing your monthly spendings on groceries, entertainment, and on other things. By recognizing how much of your money and where it is going, you can make small adjustments and changes to loosen up some more money to save.
And you will shortly notice that the more you will save, the better off you will be.
Set Your Goals
When it comes to improving your finances, the very next step is to set your goals. Keep in mind that more focus you’ll be on your goals, the faster you’ll get your finances in line and attain financial freedom.
Let me explain how it works. A myriad of people spend money in a meaningless way on the things that they think will bring them joy. But in reality, such things do not have any meaning for them.
On the other hand, if they set specific goals and knew which things actually hold a meaning to them, they would be able to spend money in a smarter way while getting more pleasure out of those purchases.
For instance, if your objective is to avail early retirement, then the chances are that you are going to limit some of the lighthearted spendings. Having such a goal will make the task of spending less on unwanted things much easier for you.
As a result, you’ll start enjoying the ways in which you will spend your money and it will bring you joy knowing that you are getting closer to your goal.
Dodge Lifestyle Inflation
The next one in the series of the personal finance tips is to ignore lifestyle inflation. You may have heard about this which goes by the name of “lifestyle creep”. This is when you forget the difference between your needs and desires, and buy more things as your income rises, thus, avoid the opportunity to get ahead in life.
For example, when in college, you were able to survive on the little money you had at that time. After graduation, you got a job and you most likely purchased some nicer shoes, clothes, etc. and started enjoying your life more.
While all this is fine, it becomes a problem when you keep on getting raises and develop a habit of spending more money than you actually need to. You might have a totally fine car, but you just got promoted and now you have this desire of owning a luxury car.
This is what you call, Lifestyle Inflation. You keep on buying things you don’t need, all because you have more money and you can.
It is essential to avoid this and keep living your existing life so that you can gain more in the future.
The question that arises here is how do you pass through the lifestyle inflation? The answer is to save money. When you get a raise, you try saving it rather spending it. In fact, the primary factor in becoming wealthy isn’t how much you earn or how high your investment returns are. It actually depends on how much money you save.
Remember, the higher your savings balance is, the more compound interest gets to work for you. In the starting when you don’t have a good amount of money, the interest you earn is nominal. But as balances grow, the interest you incur turns out to be a hefty amount of money.
So your agenda should be to reach a certain point where you can save as much as you can. Begin by paying yourself first, meaning invest in your 401k plan and establish a set up that automatically transfers to your savings account every single time you get paid.
Take whatever amount of money you think you can afford to save, then add minimum 10% to it because it is a known fact that we tend to underestimate that how much we can actually save.
So, when you receive a raise, save a good portion of it. If you learn to save effectively, you will reach financial independence in no time.
In the end, these personal finance tips will be of a perfect assistance for you to grow your wealth and make you reach your financial dreams. But it is vital that you abide by each of these tips to get there. Skipping any one of these will hamper your final result, thus, not reaching your full potential.
So take your time and work with the list to see the progress in your personal finance efforts, while countering your habits of over-spending which can lead you to the swarm of personal debt.