If you have just embarked on the path of financial independence and are trying to make some attempts at saving and planning, then it is probably quite difficult for you. Especially if you have to give money for education, a mortgage or any other loan and at the same time pay your necessary expenses every month.
That is why we suggest that you turn to foreign experts and find out what they think about the competent management of personal finances and what universal advice they can give to those who are at the very start. If you never thought about the proper management of personal finances at all, then reading this article will be doubly useful for you..
1. Explore your own sense of money
Erin Lowry, author of Broke Millennial: Stop Scraping By and Get Your Financial Life Together, says: “Start by defining your psychological perception of money.” What is your first money memory? What is it associated with? How do you feel about money today? ”
It is difficult to make progress in any issue, being immersed in triggers and mental blocks. Ask yourself bold questions about money and honestly answer them. This is necessary to create an effective system of personal finance, protected from any problems..
2. Turn time into money
“Find more time – this is a simple life hack that I always want to convey to people,” said Michel Schroeder-Gardner, founder of the personal finance website Making Sense of Cents. Many are sure that they cannot improve their financial situation due to lack of time. But at the same time they have the opportunity for several hours to watch TV or surf the Internet. By abandoning this, you will find the simplest source of time that can be converted into money in one way or another. And it’s not necessarily about work – financial education is also very useful and profitable in the future.
3. Spend less than you earn
Dominica Broadway, founder of Finances Demystified, believes that being a financially successful person is a simple math. “Just make sure your income exceeds expenses.” You can’t earn more – look for ways to spend less. Proper management of personal finances, just can not do without this basic rule.
4. Work honestly
Do not behave like most working people in the world who spend weeks waiting for salaries, advises Britney Castro, candidate for Best Money Expert 2018 award.
Think about how you are really useful, how can you improve your work? Communicate your value to the company, colleagues, superiors. Where you work at will, and not under coercion, negotiations and work issues are easily resolved.
Generally, this is a fundamental principle for managing money and personal resources. Self-giving in every action is the way up.
5. Control the money and follow the strategy
Do not act spontaneously when it comes to matters of accumulation, debt repayment, investment, etc. Set priorities and plan according to which you will develop financial independence.
6. Create an emergency fund and prioritize it
Proper management of personal finances is impossible without this. Here’s another tip from Lowry: “You need a funded fund for emergencies (airbag), regardless of your current debt burden. Otherwise, if a difficult situation arises, you will have to turn to loans and sink into debt even more. ”.
Nevertheless, debt payments are still required, even if it turns out to allocate very few funds. After the construction of an emergency fund of 100-150 thousand rubles, you can completely concentrate on eliminating debts.
7. First pay off debts with high interest
Schroeder-Gardner recommends first of all to get rid of loans and liabilities with high interest rates. After all, the longer you pull, the more you lose in total.
By the way, after paying off such a debt, it is better to start transferring the same interest to the savings account. There will be no difficulties – you did manage when you had to give this money to the bank.
8. Develop a budget
Be sure to plan your budget, especially if you have, again, debts. Calculate how much you can send in savings, and how much – to pay off. Ideally, at least 10% should be set aside and the same amount should be repaid for a loan (though there is a subtle point here with your minimum loan payment, consider this).
Having got rid of debt, send all 20% to savings and increase this amount in accordance with the increase of your income in the future.
9. Set up savings accounts with different names.
Erin Lowry says that one of the most effective savings strategies for various purposes is to create separate accounts with the appropriate names. Be specific to yourself. If you save money on a computer, separate it from the rest of the funds and name it “On a new PC”. It really helps to save, keep your goals in front of your eyes and not mix them together in a complex heap under complex digital signs or typical names.
10. Be more specific
If you want to save 200,000 rubles in two years, this corresponds to 100,000 rubles in one year or 8,400 rubles per month. Agree, this figure is more specific and “close” – you immediately feel whether it will be easy to postpone it this month or have to abandon something. Carry out such calculations – they help to adjust your strategy in time, refuse unnecessary decisions and most importantly – provide a stable movement towards the goal.
11. Master programs for planning and financial education
Dominica Broadway admitted that her favorite software tool for planning and controlling money is Personal Capital. But this is just one example of many useful and convenient applications. All of them, to varying degrees, help to see the general picture of the financial situation, income, expenses, and also predict the situation in the near future. And in many cases you don’t even have to pay for it..
She also recommends checking bank accounts daily: “This is a good habit for those who want to control spending and distribution of personal funds”.
If you also want to simplify planning and money management, pay attention to finance applications, which we already wrote about separately.
12. Focus on the 50/30/20 rule
Castro recommends the 50/30/20 rule for all his clients if they want to make sure that they manage money well and plan their budget:
• 50% of income is spent on fixed costs: utilities, car and equipment maintenance, mortgages, etc .;
• 30% goes to time expenses and pleasures: going to the cinema, gifts, buying clothes, etc .;
• 20% goes to the reserve fund or savings accounts for vacation, new home, retirement, investment and other purposes.
After analyzing your financial performance with such a breakdown, you will find out in which areas you spend too much and which do not pay enough attention. In addition, you can optimize your expenses by sending additional money to savings, if, for example, it turns out that for constant expenses you need only 45% of the income.
13. Deal with goals
All financial experts and advisers agree that achievement financial goals impossible without their clear distribution in accordance with the deadline:
• Short term. This includes tasks that need to be completed in the current year, maximum – next year. Holidays, attending concerts or events, buying gifts or pleasing things are goals for the near future..
• Medium-term. Schroeder-Gardner recommends assigning to this category the tasks that you set for the next five to ten years.
• Long term. These are tasks with big plans for the future. For most people, this is money for retirement, paying off a mortgage, or educating children.
This breakdown is another way to clarify priorities and make budget planning easier..
14. Save more if you are an entrepreneur
According to Dominica Broadway, for an ordinary employee, the optimal amount in a savings account is equal to the sum of expenses for 3-6 months, then the entrepreneur should focus on 6-9 months. This is associated with additional risks and costs associated with doing business..
15. Automate Savings
Now any bank has mobile applications and Internet portals in which you can set up automatic deduction of a specific amount to your savings account. Let 10-20% of each salary immediately go to him. The only habit that you have to develop is to put the monthly expenses into the remaining 80%. Do not hesitate, managing personal finances is easier than it sounds.
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These tips on personal finance management are really helpful, but I’m wondering, what’s the best way to prioritize and manage multiple financial goals simultaneously?
What are the most effective strategies for managing personal finances and ensuring financial stability in the long run?
The most effective strategies for managing personal finances and ensuring long-term financial stability include creating and sticking to a budget, saving and investing regularly, paying off high-interest debt, setting financial goals, living below your means, and building an emergency fund. It is also important to track your expenses, avoid unnecessary purchases, and continually educate yourself about personal finance. Seeking professional advice from financial advisors or planners can also be beneficial in creating a solid financial plan. Ultimately, practicing discipline, patience, and consistency in managing your finances is key to achieving long-term financial stability.
The most effective strategies for managing personal finances and ensuring long-term financial stability include creating and sticking to a budget, saving and investing regularly, paying off high-interest debt, setting financial goals, living below your means, and building an emergency fund. It is also important to track your expenses, avoid unnecessary purchases, and continually educate yourself about personal finance. Seeking professional advice from financial advisors or planners can also be beneficial in creating a solid financial plan. Ultimately, practicing discipline, patience, and consistency in managing your finances is key to achieving long-term financial stability.
What are some effective strategies for personal finance management that can help me navigate financial challenges and ensure long-term financial stability?