Creating financial security is something that takes time, requires discipline, and simple accounting skills. You start by identifying your goals and what steps you need to take along the way. Those steps include figuring out your net worth, working out a budget, and finding ways to save instead of spending.
Sticking to your plan makes it easier to handle just about every type of financial emergency you might encounter over your lifetime. There’s nothing like the peace of mind that comes with having more than enough money in the bank.
Know Your Net Worth
Your net worth is the sum total of all of your physical assets and money on hand, less your liabilities. Assets include items such as vehicles, the value of your home if you own one, retirement accounts, and more. Liabilities are your outstanding debts, such as a mortgage, credit card debt, car loan, and any other outstanding balances that you’re paying down. Add up your assets and liabilities, then subtract the amount of your liabilities from your total assets. This tells you how much you’re worth.
Calculating your net worth helps you create your financial plan. If your net worth is negative or close to it, you want to find ways to bring yourself into the positive. And if your net worth is solidly in the positive, you know that your current efforts with your money are working. It’s easy to
Spend Less Than You Earn
Your paycheck is a fixed yet reliable resource that helps you pay your bills and live a certain lifestyle. That’s why you need to track your spending so you don’t go over your limits and build debt. The easiest way to stay within your means is to create a budget and enter your budgetary items in order of their importance. The most important bills are paid first, with the least important at the bottom.
The goal of the budget is to keep your spending stable from month to month. It shows you where your money is going while helping you find extra cash for various types of savings. Depending on how much you have left over after bills and savings are satisfied, you can designate the rest to treat yourself now and again. Alternatively, the extra money you find can be used to get yourself out of a financial pickle at a steady rate.
Look for Ways to Cut Costs in Your Spending
Spending money lets you get the things you want when you want them. However, if you spend money frequently or pay top dollar for items that have cheaper alternatives, you’re not going to get anywhere with financial security. It’s time to go over your budget, take a look at your spending habits, and ask yourself if you really need to spend as much as you do.
Start the process by pulling out your bank statements and credit card bills. Look for spending patterns that show you where you’re spending the most money, and what you’re buying. Ask yourself if you can give up the habit, or space out the purchases so you don’t make as many of them in a given time period. If you can’t give up a habit completely, look for a low-cost alternative that delivers the same satisfaction.
Create a Saving and Investing Plan
You don’t need a lot of money to start saving and investing for the future. Savings accounts are easy to open, and many brokerages offer low-cost investment funds of various types. All you need to do is figure out how much you can set aside every month, then automate the deposit into the fund of your choice. It’s an easy way to start building your financial security.
This is also an opportunity to create a plan for the near and distant future to reach your life’s goals. For example, you’re currently 30 years old, and you want to retire by the age of 55 and live off your investments. That means you have 25 years to save, invest, and find revenue streams for early retirement. The best way to achieve your goals is to engage in financial planning and find stable investment vehicles that generate a regular return on investment. In fact, every financial goal can be achieved through careful financial planning and diligence.
Watch Out for Little Food Purchases That Add Up
Buying a coffee on the way to work or picking up lunch every day is nice, but these costs add up quickly. Buying a $5 coffee five days a week results in you spending $100 every month. That’s not a lot of money, but when you add in other small amounts that you spend daily, it adds up. That $100 quickly turns into $300 and more, depending on what you buy. It also means you’re spending $1200 on coffee over the course of a year at a minimum, a not insignificant sum.
Pay attention to what you spend every day, and look for ways to spend less. Cooking your own food and brewing your own coffee helps you save more money while ensuring that you have adequate caffeine and calories to get the boost you need. The money you save can go towards saving for the down payment on a home or buying a car.
Pay Off Your Debts
Carrying debt is something that almost everyone does, as it’s not always possible to make a major purchase without taking on a loan. At issue is the fact that debt eats into your ability to save money and use it for your own good. Focusing on paying down your debt helps you get out from underneath the burden sooner, and makes it so you pay less debt.
There are two different methods of paying down debt: avalanche and snowball. The avalanche method consists of focusing your efforts on paying down your balance with the highest interest rate, while the snowball method involves paying off your smallest debts first. You can alternate between the two methods if you experience fluctuations in income. Both of these methods make it easier for you to pay off your debt in less time, although they may constrain your income for a while.
Working on Your Financial Stability Pays Off in the Long Run
Building your financial blueprint is a lot of work, especially in the beginning. However, you’ll find that the effort turns into a habit over time, and that you’re not really missing out on much of life after all. Creating financial stability is a marathon as opposed to a race, and one day you’ll find you’re at the finish line that is retirement. The work you put in over the decades pays off in the form of being able to live comfortably with the knowledge that you can overcome just about any financial emergency.
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