Most of us are working towards financial security.
That’s why we wake up every day, go to work and earn a decent living.
And although it seems that reaching our financial goals is not as easy and we would like it to be,
hopefully these simple rules will help you in your journey to financial success.
1. Get paid what you’re worth and spend less than you earn
Do your research before accepting any job position. Find out what that position is
worth in the market, both within and without the company. Then, conduct an evaluation of
your skill sets. Look at the tasks you might be required to do, and with that asses your
level of productivity, what contributions you can give to the company and the going rate.
All of this is necessary because getting paid less than you’re supposed to, regardless of how
small the difference in money is, will affect your finances significantly in the long run.
Now here’s a hard pill to swallow: you’ll never get ahead if you keep spending more than you earn.
While this principle may seem simple to understand, many find it hard to follow
this rule. But fear not! Even if it may seem impossible to stop spending money on take aways,
shoes, clothes, etc., a good amount of dedication and the yearn to grow your bank account
can help you retrain your mind and mend your frivolous spending habits. It is far easier to
get to financial freedom by spending well below your means than by trying to earn more money.
A good starting point is to make a note of your needs and your wants. Needs are pretty obvious:
food, decent clothing, and rent. If you think about it, almost everything else is a want.
You might think you need that new appliance that you’re seeing all over your social media…
but you don’t. Do you really need to buy every new model of the iPhone? Do you really have to
buy more shoes? Do you actually require the same car in two different colours? Sorry to
break it to you, but no you don’t; none of these are needs! As soon as you’re able to
distinguish between your wants and needs, you’ll be able to have your finances under control.
You also need to understand what’s important to you in life. Differentiating between wants and
needs is not enough, you also need to distinguish between the wants that bring you fulfilment and
those which don’t. Spend more on the things that elevate your life and save the rest.
The amount of money you bring in will not matter if you keep spending beyond your means.
And this truly does test the strength of your willpower. If you’re determined to build your
bank balance and subsequently reach finical freedom, you absolutely have to follow this rule.
2. Create a budget and stick to it
Having a budget is important because it allows you to clearly see how much money is coming in
and where all of it is going. Budgeting is a vital component if you want to gain financial security.
It allows you to set financial goals (like, say for example,
how much you want to save each month) and it helps you figure out how to achieve them.
You can track your money in various ways. If you’re old-school, you can
use the traditional method of using a pen and paper to track your spending.
(Oh! And a calculator too if you’re a bit slow in the maths department like me)
Or you can use apps and websites that are created to automatically show you what your
financial goals should be based on your current financial situation. These methods can tell you
the brutally honest truth as to how much you think you’re spending versus how much money
you’re actually burning through. So be warned, you may have to take a few deep breaths when
you realise just how much you’re spending. On the bright side, once you’re over the shock,
these tools can help you make small adjustments to your spending so you have more to save and invest.
Once you have a clear image of your finances, you can set goals that are important to you and work
towards them. This could range from saving up for emergencies; buying your dream home;
or travelling around the world. As you start to get the hang of budgeting and you manage
your finances accordingly, you can sit back and watch your bank balance grow.
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Thank you!
3. Pay off credit card debt
If you aren’t careful, credit card debt can potentially hold you back financially. Not
paying off the credit card debt in time could cost you your dream of financial security (yes.
The pun was absolutely intended). Using credit cards is convenient, but sometimes it is easy to
forget that this is actual money being spent. This money will eventually have to be paid back by you.
Debt is viewed as a threat to financial security because it prevents you from making the most
out of your money. The extra cash could be used elsewhere – somewhere the money could
actually be useful. For example, it could be used for your child’s college education,
or it could contribute towards your retirement. The quicker you get yourself out of debt,
the more it’ll help your finances: you will have more money to spend towards your finical freedom.
Along with your financial situation, debt also doesn’t help your health.
It contributes to the heightening of your stress levels. When in debt, one always thinks about how
to cover those payments as well as how to save enough to simply live. We all know the negative
side effects of stress, especially on our mental health. What’s the point in spending money on
those expensive skin treatments when the debt will just stress you out and cause more break outs?
Once all your debt is cleared, you’ll be able to breathe and rest easy knowing you don’t own
anyone anything. You’ll only have the usual monthly expenses to deal with, and I think we
can all agree that worrying about those expenses is less intimidating than worrying about stress.
4. Work on a retirement plan
If it’s offered by your employers, consider contributing to a 401(K) plan,
or any retirement program for that matter. The idea of a 401(K) is that your employer
will contribute the same amount of money as you do (to a certain point) to your 401(K) account.
This is known as ‘employer match’. Although common, not all employers will offer a 401(K).
In that case opt for any other retirement plan they have for you or consider investing in an IRA.
While a 401(K) is great for those employed, a Roth IRA is a great account for younger people. It is
backed by post-tax dollars. An IRA eliminates the immediate tax deduction and it saves you
from having to pay a bigger income-bite when you withdraw the money upon retiring.
Taking up a Roth IRA as early as possible could result in a bigger pay offer in the long run,
even if the amount of money you initially invested was relatively small.
The longer the money is kept in the account, the more tax-free interest you get. Cha-Ching!
When it comes to planning for your retirement, the sooner you start the better it is. While
everyone has different personalised goals about the amount they are aiming for,
the ways of achieving it is more or less the same.
5. Have a savings plan
With all the financial obligations piled up, it is easy to forget about yourself. A useful
rule of thumb is that you should always pay yourself first. Paying all your bills first
and then putting aside whatever is left into your savings is a recipe for disaster. Why? Because it
will lead to a smaller savings account because you’ll be left with a minimal amount to save.
Before you even think about paying bills, set aside a certain percentage for yourself.
You can even have this amount automatically deducted and sent to a different account.
Preparing for the future is important but how on earth can you do that when there is no money for
it? You need to invest in a retirement account for all long terms goals. You should also have regular
investment goals to build wealth. Start this practice even if you don’t have a lot to invest
with – something is better than nothing. This way you’ll at least build the habit of investing
so when your income does eventually grow, investing and saving will become second nature.
Make sure you have money set aside to pursue your passions. This, for example, could be starting a
business. You should have a cash reserved for your passion so that you can take calculated
risks and still feel at ease. To own your own business, you will need a little financial backing
for it to take off. Open a savings account and contribute to it on a monthly basis so that you
can explore new opportunities to grow your mind, yourself and of course, your financial status.
Even if you don’t know what you’re saving for or have a specific goal in mind, you should
still save. The whole point of saving is to have reserved money if you, seemingly out of the blue,
find something you’d like to do. Feel like going on a Baltic cruise all of a sudden?
Well hey! You’ve got the money for it because you thought ahead and saved.
There is no denying the fact that life is full of unexpected surprises.
At any given point, you could lose your job, face some natural disaster or get robbed!
(ok that escalated quickly. I promise I’m not trying to scare you).
You need to have money saved for any kind of emergency. Not only are these emergencies
physically and mentally draining, they can also empty out your pockets if you are not ready.
Prepare for the worst by saving up money which will specifically be only used for emergencies.
We all need a sense of security to enjoy life. Financial security happens to be at
the top of this list. If you don’t have money set aside, you’ll always
be worried about not having a safety net if something unexpected were to happen.
6. Review your insurance
A lot of people fall prey to paying more than necessary for life insurance and
disability insurance. This could range from adding coverages to car loans;
buying whole-life insurance policies instead of term life policies
(the latter is more sensible); or buying life insurance when you don’t even have any dependants.
Insurance is only beneficial if the coverage is enough to handle whatever losses you face.
With regards to those of you with dependants,
do a lot of research to ensure you pick the best life insurance for you and your loved ones.
You want to make sure they will be comfortable even in your absence.
It’s safe to assume that during your long life, your lifestyle and personal needs are bound
to change from time to time. With a change in lifestyle, you’ll also have to change the kind of
insurance you have. You need to make sure you are constantly reviewing your insurance plans you have
to ensure it fits with your current lifestyle. Whether it be buying a car, putting your child
through school or an unexpected medical emergency, having the specific insurance is very beneficial.
7. Update your will
Research shows that only a small percentage of the population have a valid will.
If you have dependants, it is extremely vital that you have a will.
It does not matter how much you have to give; a will is a necessity.
If it seems daunting to go into a lawyer’s office and have them draft your will,
technology is your best friend. There are a number of software that draft it for you instead.
Once you have written your will, don’t forget about it. It’s easy to
assume that your initial draft is good enough and that your future is secure.
This is not the case. Just like the insurance plans which you always have
to review with a changing lifestyle, the same principle applies to a will.
Make sure you always add (or remove) things from your will as needed before it’s set in stone.
We all worry about our loved ones. We want to make sure they have a safe and secure future.
This is why a will is necessary. And more importantly, this is why
you need to constantly update it. Your will dictates who gets what, and while there is
a process through which family members can argue that they haven’t been given enough,
it’s time consuming and expensive. Protect your loved ones by having a valid will
which you constantly review so that every person you love gets the protection they need.