Everyone wants to improve his/her financial life but fails to take the necessary actions. Here are 4 rules which you can follow in order to improve your financial life and build a secured future.
Rule 1: Identify your present needs from wants
In order to make a wiser spending choice, at first you need to distinguish your ‘needs’ from your ‘wants’. Your ‘needs’ should be your daily necessities (such as, food, shelter, clothing. etc.), along with saving 10% of your monthly income. On the other hand, ‘wants’ are what you want to have, which you can do without. Often it might be difficult to draw the line between the two; however, you need to distinguish as otherwise you will land yourself into debt problems. For example, having a house is surely a necessity; however, you can choose a house with the basic amenities instead of going for a property which is undoubtedly a better one but might be difficult for you to afford at present. In this situation, what you can do is buy a comparatively low cost home and save money in order to buy a better one after a few years when your financial condition will improve. Might be, what you need to do is plan your finances such that you’ll be able to afford a better house after a certain number of years.
Rule 2: Plan suitable budgets and your financial moves
Planning suitable budgets – monthly and yearly budgets, are prerequisites of improving your financial life. Before planning a monthly budget, at first, evaluate where you are financially and where you want to see yourself after a certain time period – say about 5 or 10 years down the lane. To do so, calculate your assets and your savings; then, set your financial goals. While doing so, remember to set achievable goals as otherwise, you will not be motivated. After you do this, start planning a monthly budget considering your income and expenditure (your necessities) along with how much you want to save in order to meet your goals in the mentioned time period. It is equally important to plan an annual budget and planning your weekly budget as well, so that you can calculate your progress every month. It will help you stay motivated.
Rule 3: Save money for the rainy days
Saving money for the rainy days or building an emergency fund is another building block of achieving a financially secured future. As the name suggests, an emergency fund can save you from falling into debt. You should use this fund only for unexpected expenses such as, a medical emergency, sudden repair work, etc. This fund will help you if you are laid off or your usual flow of income is interrupted for some months. Financial experts say that you should save about 3-6 months’ worth of your living expense, though the amount can vary from person to person. To save this amount, the best attempt is to include a certain amount in your monthly budget allowance.
Rule 4: Learn to manage lifestyle inflation
It is quite natural to increase spending with the increase in monthly income. However, you need to know where to strike the balance so as to not restrict your ability to build the required wealth, which you might need during and after retirement. You may have to embrace certain lifestyle changes but do not live paycheck to paycheck in order to match your friends’ lifestyle. You never know, they may not be saving the required amount or might be inviting debt problems. Improving your quality of life is not harmful; however, you should do so without hampering your required savings in order to meet your financial goals.
Along with following these rules, you should also start saving for retirement right from when you start earning. Though it is never late to start saving, yet you will be able to plan your financial life better if you start from an early age. Remember if you save now, it will give you the opportunity to spend more in future, when required, without having to worry much. Therefore, carefully plan your financial moves today in order to improve your financial life in the coming years.