The Basic Principles of Financial Success
There are basic principles that will determine your success in personal finance. These principles are the building blocks of life habits that will go a long way in ensuring your financial success. However, it may require some bit of discipline on your part.
One thing the wealthy have in common is their lifelong habit of saving and spending judiciously. Habits which most young Americans, just starting out, find it difficult to imbibe. Therefore, so many people live with little or no savings and are deeply in debt. However, with some determination, you can get into the habit of better managing your money. And like most things, it will only get easier with time when you persist.
Let’s look at how the carefully cultivated habits of savings and spending will lead you to financial success:
It may not be very popular, but saving is the foundation of a great financial future. While you are better off saving right from the start of your career, it’s never too late to start. Here’s how you can go about increasing your savings and developing a base for future financial success for you and your dependents.
1. Have a savings goal
When you know exactly what you are saving for and why it gets a lot easier.
Ultimately, your main goal of saving should be to become financially free. Financial freedom is the point at which you can afford to spend all day lounging on a beach with a book and little else.
You do not need to work for the “man” or for anyone else and can spend your time as it pleases you.
Dwell on all the fine details of this dream, and it wouldn’t be that difficult to set money aside every now and then. Of course, you should also aspire to shorter-term savings goal like shredding your debt or buying a new home or car.
Putting these goals in writing is a neat way of making them come true faster. Furthermore, you can display them with appealing visuals and place them conspicuously so that you are always fired up.
2. Your savings goals should be SMART
Your goals of a life of lazy indulgence are just dreams ‘till you start breaking them down into detailed solid plans.
Make your goals specific, measurable, achievable, realistic, and trackable. For each goal, especially the short-term goals, find out the cost and figure out how much cash you need to put aside each month to make them happen.
3. Pay yourself first
You’ve heard it a million times, I know. But it’s still the best way to go about saving. Once you have decided on the amount to save to meet up with your goals, remove the money once you earn or get paid before you even have a chance to start spending it.
For better compliance, you should automate this process. There are several saving plans that can automatically transfer your money to a dedicated saving or investment account. These save you the hassles of making the transfers yourself. Another great way to achieve this is through your employer’s 401k or any retirement plan. It’s even better if they match your contribution.
4. Increase your saving with time
If you earn little and as such have little to save, do not despair. Here’s what to do: start with what you can save now, no matter how small and increase the amount over time. Interestingly, some retirement plans come with a contribution rate escalator that lets you do exactly this automatically.
It’s a darned powerful way to acquire wealth gradually. And so many of the wealthy among us attribute this strategy as their secret sauce.
As you can see, these steps are not that intimidating. Following them religiously will make savings a habit for you. And what becomes a habit will in no time solidify your dreams into achievements.
On the other complementary side of saving, like yin and yang, is spending.
Good spending habits encourage savings and vice-versa.
Here are some ways to make judicious use of your hard-earned income and set yourself on the path to wealth.
1. Stick to the plan
Saving more means, you have less to spend. Therefore, it’s imperative that you stick closely to your spending plans or budget. A little slack here and there, and you will see yourself heading fast into debt. Here is where tracking your expense is an essential part of wise spending.
There are also other smart tracking strategies that do not rely on technology. For instance, you can assign a fixed weekly or monthly allowance for a specific expense either in physical cash or in separate checking accounts.
Some of the expense categories could include shopping, entertainment, and food. And once the amount budgeted for each category is finished, you will have to endure till the next cycle. To find out more about expense tracking, see this article.
2. Cut back on your expenses
Even if you earn additional income, reducing what you spend daily will bring you closer faster to your goals.
Firstly, you should optimize tracking your expense using any of the strategies listed above that is more natural to you. After dutifully tracking your expenses for a while, you should be able to know the extra fluffy spending to eliminate.
Ruthlessly cut this money suckers off.
Stuff like subscriptions you never read, or gym membership you make use of once a month or the fancy restaurant you always eat at when you can easily prepare an even tastier, healthier meal at home.
Lastly, see how you can further reduce the remaining expenses by shopping around for better deals. There’s even a company Billcutterz that will negotiate your bills downward and split the savings thereof with you.
3. Create a budget
Urrrgggghhh!!! Budgeting sounds about as pleasant as a dose of castor oil. However, you must make out time to properly plan your spending. Or watch your money disappear fast!
You can make budgeting fun by seeing it as a way of prioritizing your values, rather than depriving yourself.
Since marketers bombard us every day with ads specially designed to persuade us that we have needs when there are none. A budget offers the first line of defense against the pervasive barrage of insidious ads.
With a budget, you regain control of your money and spend first on your actual needs before other things. Lastly, by reigning in your spending, a budget will help you reach your saving goals faster.
What Financial Success Means
Success in your finances means you have achieved control over your money and not the other way around.
You don’t necessarily have to be a millionaire.
Success may be a tall order if you are struggling financially. But by steadily practicing good money habits, you will gradually achieve your dreams of success.
Managing your money to financial success is an ongoing project. And here’s the good news: you don’t have to be a personal finance guru to achieve success. However, you need to understand the basics of saving and spending as stated above and follow these simple steps to gain mastery over your finances and future.