Talking about money is always interesting because everyone wants to make and manage it. It’s just human nature – we like to gather and have things, which make us feel secure and important.
Unfortunately, even though finances are crucial, many people aren’t taught about them in school. This leaves generations unprepared to handle their money effectively.
There’s a ton of advice out there on how to get rich, but it’s not always easy to follow. Financial advisors may be more interested in their own profit than your success, and much of the advice out there is overly complicated.
I’m not a financial advisor, just someone who wanted to improve my own finances. So, I’ll share what I’ve learned in a simple way, like I wished I had found when I was researching.
Here are 5 practical ways to improve your financial state. Let’s get into it..
Mindful spending
Start by being mindful of how you spend your money. Instead of immediately cutting expenses or restricting yourself, try to live your usual lifestyle for a week. Treat yourself a bit – have that coffee, indulge in a croissant, or order takeout on Friday night.
Find a balance between spending comfortably and keeping track of your expenses. Maybe it’s treating yourself to a massage every Sunday or enjoying a game of squash. Everyone’s definition of comfort varies.
The key is to understand where your money is going. Many banking apps categorize your spending, making it easier to see where your money is flowing.
Develop strategic spending
Practice strategic spending involves analyzing your usual spending habits and addressing any problematic behaviours. While some financial difficulties may arise from unforeseen circumstances like medical emergencies, it’s essential to recognize and address patterns such as impulsive buying, a lack of patience, or a strained relationship with money.
Consider these common scenarios:
- Feeling pressured to keep up with others who have the latest gadgets or experiences.
- Succumbing to the fear of missing out on social events or purchases.
- Rationalizing extravagant purchases beyond your means as a one-time indulgence.
Strategic spending entails planning your expenses thoughtfully:
- Assess whether immediate purchases align with your budget and financial goals. If not, determine when you can comfortably afford them.
- Evaluate the true importance of spending on social activities or material goods. Consider whether they genuinely contribute to your happiness.
- Set realistic goals for larger purchases within your means, avoiding unnecessary debt.
- Prioritize spending based on necessity and value, delaying non-urgent purchases if needed.
- Manage impulsive urges by understanding underlying emotions and seeking alternative solutions.
- Utilize strategies like splitting payments or adjusting future budgets to accommodate current desires.
Just approaching spending decisions with logic and foresight, you can mitigate impulsive behaviours and make more informed choices aligned with your financial well-being.
Prioritize clearing your debts
If you find yourself in debt, you’re not alone – it’s a common situation for many people, whether it’s from student loans, a mortgage, car payments, or credit cards. It’s important to understand that debt isn’t inherently bad; it can actually be a tool for growth and progress.
Consider this: while it might take years to save up enough money to start a business, taking out a loan could expedite the process, allowing you to establish a successful venture sooner. Even big companies like Apple, Amazon, and Netflix utilize debt strategically to fuel their growth, despite having substantial reserves.
Growing up in an environment where debt was frowned upon, I learned to approach it strategically. Instead of shunning it entirely, I learned to use it wisely to avoid tying up my own funds unnecessarily.
However, it’s crucial to manage your debt responsibly. Here’s a rule of thumb I follow:
Assess how much you can comfortably save in a year without resorting to extreme frugality, and allocate up to 70% of that amount towards debt repayment for the year. For instance, if you can save $30,000 in a year, you could allocate around $20,000 towards debt repayment, which amounts to approximately $1,600 per month.
Use online calculators to determine the repayment period that suits your financial situation. Additionally, aim to maintain a cushion of at least 30% of your savings to prevent further debt accumulation or to increase your debt repayments, thereby reducing the overall repayment period.
Whenever possible, strive to pay more than the minimum required amount, focusing on reducing the repayment period rather than just the monthly payment. This proactive approach will help you achieve financial freedom sooner.
Streamline your accounts
Make sure you’re getting the most out of your accounts by optimizing their features.
Before opening any account, take the time to research these key aspects:
- The bank’s reputation and reliability.
- Different types of accounts are offered.
- Associated taxes and fees.
- Savings Annual Percentage Rate (APR) for debit accounts.
- Payback APR for credit accounts.
When considering credit cards, prioritize these features:
- Lowest possible APR.
- Extended payback periods without applying any APR.
- Rewards and benefits programs.
For debit accounts, focus on these features:
- Absence of or minimal overdraft fees.
- Reasonable overdraft limits.
- No ATM fees.
- Additional benefits.
- No account maintenance fees.
Regardless of the account type, consider these proactive steps:
- Request a waiver for late fees on credit cards immediately (which may not affect your credit score).
- Negotiate for a higher savings APR for debit accounts if you’re a loyal customer.
- Negotiate for a lower credit card APR if you’ve been a longtime customer.
Start Investing
Once you’ve figured out your spending patterns, and devised a strategic plan to save and manage your debts, it’s time to consider investing.
However, diving into investments hastily, risking going into debt or halting your savings, isn’t wise. Invest only what you can afford to without compromising your financial stability.
When you’re financially secure enough to start investing, it’s a step worth taking. While there are numerous investment options available, here’s what I personally intend to do (though I can’t guarantee its effectiveness):
- Save at least 30% of my income, considering my living expenses are lower.
- Allocate a portion of those savings for investment, typically no more than 50%.
- Divide the investment budget as follows:
- 50% into a long-term ISA (Individual Savings Account).
- 25% into selected stocks and ETFs (Exchange-Traded Funds) with potential growth.
- 25% into cryptocurrency (or other alternative investments like wines, whisky, or luxury items like a Birkin bag), acknowledging the controversial nature of this choice but respecting individual preferences.
Final thought
Getting a grip on your cash flow is like going on an adventure—it’s all about getting to know how you spend your dough, playing it smart with what you owe, and making some savvy moves in the investment game. It’s about being one step ahead, so you’re sitting pretty tomorrow.
Here’s the deal: stash that cash, dodge the debt trap, and only bet your bucks where it makes sense. Sure, there are a bunch of ways to play the money game, but the real trick is to keep your cool, stay the course, and keep your eyes on the prize—those big dreams down the road. Stick with it, and you’ll be on your way to making bank and chilling without a worry.
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