It seems nowadays that we keep getting advice from all these personal finance "gurus" who make us feel even more confused than when we started asking questions in the first place. Don't blindly trust financial consultants. Often these people are just salespeople in disguise.
So, I decided to take matters into my own hands and since I do have a Business degree and a major in Accounting, maybe I have something useful to add to this topic.
1. Track your Income and Expenses
You can use Excel or Mint or any software you prefer. The key is to track where your money is going each month, but don't obsess over this though. Do have a goal or reason in mind for why you are tracking your money. Also, tracking your money can help you write off many expenses you incur so make this a habit.
2. Keep your net monthly expenses less than your monthly income
This is obvious but if can get out of hand, especially if you're not tracking your expenses each month.
3. Save 50% of your after-tax income
If you have debt, obviously you can't do this. However, in this situation then allocate 10% of your pre-tax income to savings. Shoot for a savings goal of at least six months’ salary. This will give you a cushion if you get laid off. Personal sacrifice will result in more savings, but you should treat yourself to the things you want every once in a while, however don't make splurging your lifestyle, treat it as a special gift for yourself once a month or when you complete a goal. Also, allocate 50% of every raise, bonus, or increase in salary away, so you improve your lifestyle, but only by half of what you got.
4. Pay cash for your car and keep it until it breaks
Or at least make it a goal to pay off your car as soon as possible.
5. Set up your monthly payments/bills on auto pay
This applies only if you keep forgetting to pay your bills on time. I actually prefer to pay the bills when they arrive because I get to see how much they are and I make changes right away, if I can.
6. Use a credit card that gives you rewards/points to pay ALL daily and monthly expenses
Just make sure to pay your credit card in full each month, no matter what! If you don’t, the interest rates on those balances will bleed you dry. If you can’t afford to pay off your credit card balance in full, you should not have spent the money in the first place. Credit cards are good to establish a good credit history but people think that they must carry a balance in order for their credit to build, but this is the opposite of what they need to do. Pay on time and in full please. Don’t fight me on this one.
7. Pay for what you can afford
Only go on trips when you can pay for ALL travel with the budget you allocated for trips only or when you have enough points. Same goes for entertainment; first save, pay fixed expenses and then have fun. Work hard, play hard.
8. Set aside 1 year of future expenses in your budget
Expenses such as holidays, birthdays, etc. Then, divide those expenses by 12 and keep them in cash reserve, we often forget to budget for these.
9. Diversify and Invest in Yourself
You will reach a point where you are only comfortable with X amount in your savings account. Once you get to that point, read all you can about investing money and then allocate as much as you can evenly between cash, stock, savings, real estate, any other thing you feel like investing in. Maybe also think about learning a new skill to keep yourself marketable. Don't get complacent in your career or your company. Invest in yourself and demand more money as warranted.
10. Volunteer to help someone less fortunate
This helps especially because you get to see how others live their life with less. Help even those who have money; help them make connections or by giving them advice/ideas.
Remember to want less and keep it simple. Avoid the advice by "gurus" about wanting more. More money, more problems. This is not a poor mentality, this is the type of mentality that takes a lot of courage and inner strength. Go for the smaller house or apartment, go for the job that means something to you and not just look at the salary. Learn to live within your means. The biggest mistake people make in our culture is they consume to appear like they are better off than they are, e.g., driving a BMW when they should be driving a Honda based on their income. Be happy with what you have, don't envy your neighbors new car. Ignore the keeping up with the Jones mentality.
It may take a few months to get everything sorted it out, and that’s totally okay. Life isn’t a sprint, it’s a marathon. Focus on taking just one step at a time, and before you realize it, you’ll be amazed by how far you’ve come. Remember this, someone is not living an enriched life because they have amassed wealth and material possessions. Someone is living an enriched life because they have the freedom to spend their time how they wish. May that someone be you!
If you need help getting started with a budget or even changing your mindset about money, then let me know in the comments section and I will reply with ideas. Also, do share your tips for living a happier financial life.
With Love, Dania