1. Calculating your Net Worth
A net worth is not something only applicable to stars like Oprah or Business people. For us regular folks, net worth is extremely important. Moreso when you have a set flow of income and think about taking loans etc, with no plans of supplementing the payments.Your net worth tells you how much you owe versus how much you own. Knowing this can change your life. It can help you save more effectively, manage your day to day spending and the most important perhaps, is a plan for a secure financial future. As Suze Orman puts it, having a snapshot of your finances is one of the best ways to begin cleaning up your finances. So learning to calculate your net worth is a great start.
2. Loans can be a good thing
Loans are not always bad. In fact, loans are how you build your credit score. One thing I’ve learned about loans is that it is important to spend it on something that is giving you returns for the money spent. The ideal way to spend a loan would be spending it on something that will, in turn, pay off the loan. For example, if you are taking a loan for a camera, the goal should be that the camera would, in turn, make you money through photography etc, which would then repay itself. Don’t take a loan for shopping sprees or luxurious purchases, unless you have a sure lump sum coming soon to pay it off. I beg, please don’t.
3. Retirement is real
If you’ve just started working, this point is especially for you, young 23 year-old. Starting a retirement plan in your early twenties versus in your 30’s can be the difference between 1M and 500K. That’s how crucial it is. The earlier you start, the more money you’ll have to go on senior cruises and spoil your future grandkids. Find an insurance agent near you, and ask about retirement packages, shop around for the best packages.
4. Saving is NOT optional
Most people, believe it or not, approach saving as a “Whatever I have leftover” fund. I can’t stress enough how much of a TERRIBLE APPROACH that is to personal finance. At the very least, you should always save 10% of your income. Put that firstly into a savings fund then live on what’s left. Not the other way around.
5. Budget, Budget, Budget
Want to get the best value out of your money? Then budgeting is your answer. Budgeting helps you see where you are making bad financial decisions. Experts recommend about 30% of your income should be budgeted for Lifestyle Spending, and 20% should be set toward financial responsibilities like retirement and emergency funds. Honestly, I have no budget for “shopping” and I don’t feel like I’m missing out. I have my “lifestyle” budget, and whatever is left over of that, I use to buy something I like. I try not buy on the first impulse. Stick to your budget.
6. Standing Orders are your friends
A standing order dispenses your money before you even see it, or get to touch it. This way, your savings go automatically to your savings account, your bills can be paid from your account. You can set a standing order for a fixed amount of time, to leave your account at a certain time of the month, amounts all set by you. Contact your bank, visit your nearest branch
7. Have a Financial Vision Board
Vision boards get you motivated. They help you set goals, see them and measure them in some way. I love this article on How to create a financial vision board. it’s not rocket science, you have goals for everything, and your personal finance should not be excluded. Plan and take action!
8. Have more than one stream of income
When it comes to having assets, the most valuable are those that generate income. Having several streams of income means that you are not dependent on any one job or project. If one falls short, the other should be more than enough from keeping you homeless or hungry.
9. Pay Raise = [Retirement Raise + Savings Raise]
When you finally get that raise that’s been long overdue, know that the real value is not in the immediate things you can now buy like a purse, new phone, makeup. But it means that referring to number 4 and 5 above, your savings and retirement/annuity funds should raise also. Yes, a short-term pay raise should be used to have a long term effect.
And that, my friends are a few tips to taking control of your personal finance. Some of these, I am yet to practice admittedly.