Money constitutes a big portion of our daily lives. Having too much or too little money determines the opportunities, liberties and freedom we can exercise in our day to day lives. This is not about whether or not money can buy happiness – a topic which has been debated for awhile now, but more about how some of us can manage our money better so we can create the opportunities that we want for ourselves or our loved ones in the future.
So what are the steps you need to be taking in order to achieving a stronger financial standing? Here are a few tips that I think may help in getting your journey started.
Spend Less than You Earn:
You must work really hard to earn what you have, unless you are made by mummy and daddy. Even if you are someone who has inherited a fortune from your parents, think about what they have had to do to get where they are. Rule number one is always spend less than what you make, ‘don’t go poor trying to look rich’. There are only two levers that you can control, one is the amount you spend and the other the amount you earn. So always keep the lever pertinent to spending geared at a lower level than what you earn. We have a really bad tendency to jump on a bandwagon and follow the heard. You need to set your limitations and stick to your financial plan. If you don’t have one, make one.
Develop A Financial Plan:
The best way to start a financial plan is by devising financial goals. Whatever the goal, always keep your eye on it and work towards it. You need to have direction of where you want to go. One thing to remember is that you need to be realistic with the goals, if you set unrealistic goals you are bound to fall short.
Savings vs Investing
There has been a lot of talk about the benefits of savings, but very little on defining it for us. First you need to recognize that nobody has gotten rich by saving, people get rich by investing. You need to know the difference. Saving is buying something that was initially for Rs. 10,000 for Rs. 8,000. Or shaving some money off your monthly budget due to perhaps a lower electricity bill. People who leave money in bank account’s hardly become rich. You need to invest the money, whether that be in mutual funds, real estate, commodities such as gold or oil, or in your business. You need to invest period… The one important rule about investing is that if you start early the chances are you will yield better results. Starting earlier than later allows you recover any lows in your chosen investment avenue. As you get older your expenses get higher, your propensity to consume gets higher and your risk tolerance reduces. In order to be financially successful, you need to do both (ie. save and invest) – but also identify why you are doing what you are doing.
Make sure you can pay off what you borrow. Borrowing from banks is expensive, so you better be very sure you can afford to keep up with the payments. If you are a regular credit card user then avoid spending on the impulse, only use it to pay for things and amounts you will be able to pay off at the end of the month. Credit is useful, but can also become a burden if used irresponsibly. Know the difference of good debt and bad debt. Simply put, if you are using debt to finance a lifestyle then you should stop, if you use debt to build assets like a house or business then it’s okay. Whatever you are using debt for make sure you know what you are getting into, the conditions, implications and penalties associated with it.
Wants vs Needs
Understand your want’s and your needs. You want a vacation to Thailand right now, but going would mean stretching the finances at the more here moment. Yes, if you work hard you will need a break to recharge your batteries. What you need to answer is whether an expensive vacation is the only way to energize yourself? Could going on a cheaper holiday to Northern Pakistan perhaps help relax you? It is important to be careful in discerning your wants and needs. Every person has their own level of affordability, establish your respective thresholds to determine between the wants and needs.
Developing good money habits is crucial to achieving financial success and stability. Like anything else in life generating wealth is a lot of work. Make sound decisions according to your respective stage in life. Start investing earlier than later – it doesn’t matter even if it is Rs. 500 a month (you can start with mutual funds with amounts as little as Rs. 500). Build a financial plan, and try sticking to it.