Tips for Better Personal Finances
Do you want to boost your personal income? Earning more money and keeping more of it is important if you want improve your finances. If you’re unhappy about your income it’s important to take the right steps to increase your income. Here are some of the best options:
1. Set a budget
If you want to get your personal finances in order this is one of the most important steps to take. You can set a budget or spending plan for every month or year. This process can provide several benefits including:
Plan for emergencies
Save for the future
Plan for expenses
These are several important metrics for your personal finances so it’s critical to consider them when creating a personal budget. Make sure to add major categories of income include bonuses, rent, benefits, alimony, interest, social security, etc. There are various sources of future expenses. Subjecting the expenses from income will help you to set financial projections. This can help you to budget your income better since you’ll know where you’ll be making and spending money.
2. Learn your net worth
It’s no secret that your net worth is about your income versus expenses. However, it’s important to do some number crunching to find out exactly what your net worth is. This can also help you to set goals for your personal finances. It can be tough to set those goals when you don’t know what your current value is since the goals are based on boosting revenue and cutting expenses.
Your net worth is a good place to start. Make a list of what you own (assets) and what you owe (liabilities). Then subject liabilities from assets to find out your net worth. This is your current financial situation. Make sure to review your net worth from time to time since it can fluctuate based on factors like getting a raise/promotion at work, taking out a loan/mortgage, etc. In fact, this figure is constantly changing as your income/expenses also change.
3. Know your needs and wants
These are two different things although people often use the terms interchangeably. Technically speaking you only needs the basics to live including “food, clothes and shelter.” In modern society other needs include things like transportation and healthcare, but even in these areas there are ways to save money like taking a bus/subway or living a healthy lifestyle.
Wants are a totally different category. These are things that you’d like to own but don’t’ actually require for survival. They include gadgets, limousines, and so on.
There can be a fine line between a person’s wants and the concept of “survival” is different now than it was thousands of years ago. Still, it’s important to consider the functionality of items in order to determine whether or not you really need them. For example, if a used sedan is sufficient for your household to get to work/school and complete errands then it’s a more practical option than a SUV. Both vehicles can help you get to Point B but one is more practical than the other.
4. Check interest rates
It’s always important to check interest rates. This includes things like credit cards, bank accounts, etc. This will help to determine how fast interest increases when you’re spending or saving money, which is important.
5. Start an emergency fund
Even when we make plans for the future it’s a rule of thumb that “stuff” happens in life. It’s important for your personal budget to be ready for those situations and one of the best options is an emergency fund. What’s it all about? The emergency fund helps you to prepare for unexpected expenses that aren’t in your regular expenses. They include emergency dental work, car repairs, etc. you can also use the emergency fund if there’s a situation like illness/injury that prevents you from paying your regular bills.
How much should be in the fund? There’s a lot of debate as some experts say 3-6 months’ worth of salary while others say 6+ months to cover big expenses like major medical emergencies. What’s important is to start an emergency fund and keep contributing to it in order to get the best results.
6. Manage lifestyle inflation
This concept helps to explain why so many wealthy people file for bankruptcy. It’s a basic law of economics that when people make more money they spend more money. As people get promotions and raises they tend to spend more money. That’s what “lifestyle inflation” is about. This can be a devastating effect on your personal finances because it affects your ability to increase wealth. For example, the more you spend when you have money the less you’ll have in the future and during retirement.
Why does lifestyle inflation happen? There are various reasons but one of the main ones is people’s goal of trying to “keep up with the Joneses.” They might feel the need to have the same lifestyle of their friends and neighbors whether it involves houses, vehicles, gadgets, vacations, etc. This process can be expensive and especially when it involves things that cost big bucks. Regardless of your income it can cause you to live from paycheck to paycheck.
7. Build a financial calendar
This is a great use of technology since it doesn’t require you to keep looking at a paper-based calendar every day of the year. It provides alerts for things like income taxes, monthly payments, credit reports, and so on. There are different calendar tools on the Internet and some of them are free.
8. Start saving and start early
It’s never too late to start saving up for your retirement. That said, it’s still better to start as soon as possible. For example, if you’re making long-term investments like mutual funds then it’s important to keep adding to the pot and let it sit for several decades. On the other hand, if you’re unable to save before retirement it can cause a world of trouble for you later in life and even require you to keep working a part-time job when you should be enjoying your twilight years.