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6 Ways to Be More Prudent and More Financially Stable

6 Ways to Be More Prudent and More Financially Stable

We are taught to manage our finances while we are still kids. Our parents give us an allowance and see how we distribute our money throughout the month or week. Then when we move out during our studies, we have to pay bills and buy food so managing finances becomes a bit more difficult. Then we start to live in a home of our own, where there are all sorts of other bills and repairs to worry about, so staying within your budget becomes even more difficult.

If we are not careful, we can easily end up having money problems and this can lead to a very stressful life in the future. Furthermore, we live in a time of consumerism, so a lot of people out there are trying to sell you things you don’t even need, but they are making compelling cases so that you end up becoming a customer. Due to these reasons, managing finances becomes more challenging, so here are some tips that can help you become more frugal.

Plan out how much you are allowed to spend

Alright, one of the most basic mistakes one can make when handling salary, is to adopt a “go with the flow” point of view. When you get your paycheck, it would be wise to have some sort of basic budget plan i.e. a rough estimate of how much you can spend on a daily basis, so that you can go through an entire month living fairly comfortably.

Once you have that, you should by no means spend the entire daily budget, since you are bound to face unexpected expenses and you’ll need an emergency fund. Also, this daily budget is a good starting point for future financial strategies. You’ll need to find different ways of increasing your daily limit and challenging yourself to save more.

Do not be financially dependent on other people

Of course, if you are going through a bad financial patch, chances are you will borrow money from friends or family. However, you should not allow this to become a habit. Being financially dependent on other people makes you one step closer to financial suicide.

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Truth be told, you might not borrow much and your close friends or family won’t mind you borrowing some money, but this is more of a personal issue. If you constantly need to depend on other people, then you have a problem that has a rather simple solution. You can either spend less or find a way to earn more.

We live in a world where earning a bit extra cash is really not that hard, it’s simply tedious. You can complete surveys or install apps that you can use to earn money online and then can cash-in later. If you continue to rely on others from one month to another, it will only send a message that you refuse to solve your problems and this can leave severe consequences in the future.

Do thorough research before important decisions

It is important that you do not make any big investments without thorough research. You can visit different types of agencies and speak to different financial advisors, but bear in mind, that these people can have a vested interest when they tell you what to do. If the advice is not coming from a close friend or a family member who genuinely cares for you and who is well-versed in money management, don’t immediately adhere to it.

You can do online research and find more accurate information this way. Of course, the people who tell you how to handle your finances are also online and will probably advise you the same thing there, but there is a difference. Google has its own base of trusted websites, and there are always ways to check if sites are trustworthy. Here are some explanations on how to do it, but you can find even more online.

These big decisions are usually loans and these loans are sometimes a necessity, because it is unrealistic to expect that you can simply pay for an entire house with cash. So, at one point you might need to get a house mortgage. When someone explains to you how this whole process works and you feel that the explanation is oversimplified, then chances are that, the person has a vested interest in your investment.

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It’s important that you are vigilant and that you explore all of the other options before you go through with this type of decision. Here is a good guide that can help you gain a deeper understanding of mortgage rates; make sure you go through it if you plan to buy a new home, or if you want to be a real estate investor.

Another important thing to remember is not to turn to the payday loan industry. These are also known as predatory loans, because their interest rates are ridiculously high. They only offer a quick solution, but everyone ends up regretting their decision due to the astronomical interest rates.

In other words, if you really need a loan and intend to pay it back, then it’s far better to borrow from friends or family. People usually end up borrowing money from others, or pawn their possessions in order to return payday loans and they could have done those things in the first place instead of taking that loan.

Use money management tools

I have already mentioned how you can use apps to earn money, but you can also use apps to save money. There are apps that can calculate your expenses and give you good financial advice, but it’s always better to seek a financial advisor you can trust. However, there are apps which can help you get coupons or discounts in stores.

They will also provide you with insight into which stores currently have discounts, sales etc. These are really useful and with a good shopping strategy you can save a lot of money. It’s also important to know that some of these quality apps come at a price, so you should only buy them if you absolutely need them.

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In other words, if you are already having a hard time managing your resources and have debts, then these apps won’t do much good; they will only be an additional expense. On the other hand, if you want to create a good savings strategy, then buying them is a good idea, since they will eventually pay for themselves.

Use saving tactics

When it comes to saving money, there are so many viable tactics out there that you would be surprised. In this section I will only list some that I really like, but as mentioned you can find a lot more online.

  • Weekly challenge: Basically you set the amount of money you wish to put aside each week (it can be $1, $5, or $10). Then at the end of the week you put that amount in a piggy bank or a savings jar, but at the end of next week, the amount needs to be doubled and so on.

So, if you go for $5 then, next week you place $10, and a week after that is $20, and the last             week of the month is $40. You reset the amount at the beginning of the next month. Also it             might be better to place the money in the jar at the beginning of the week, so that you know             you cannot count on it.

  • Wait for a discount on general goods, like cleaning products, toilet paper, toothpaste etc. Then feel free to buy these goods in bulk and you won’t have to spend money on them in the near future.
  • If you need new furniture, check out sites like freecycle.org to see what you can get free of charge.
  • Instead of buying cleaning rags, you can save your old clothes that are no longer wearable, and use them to clean floors.
  • Before you go shopping, write a list and stick to it; don’t be tempted to buy anything you don’t need. In any store, the most essential items are usually in the back, so that shoppers are tempted by expensive products they do not need while they are walking to the back of the store to buy what they came for.
  • Learn how to repair clothes so you won’t have to toss it away at the first signs of wear and tear and you can also earn some extra cash if you monetize these skills.
  • Buy light bulbs that do not use as much energy as regular light bulbs, they last longer and even though they are expensive, they will pay for themselves and save you money.

Once you manage to accumulate a fine amount of resources with these saving tactics you can invest in things like solar panels and a tankless water heater, since these will also save you money in the long run. Moreover, in case you want to discover more saving tactics, you can use websites like thesimpledollar.com, and you can find some good tips in this article as well.

If you go through the links, you’ll find out that if you choose to live healthier you’ll also save a lot of money. We all spend too much on food and if you learn how to prepare it yourself, you will eat better and spend less.

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Furthermore, if you buy bottled water, you should stop and buy a filter for tap water; this way you can drink tap water and you won’t have to buy it from the store. Also, if you carpool with your colleagues from work, you save the environment and money that would go on gas. In other words, we spend a lot just to have a bit more convenience and we don’t really need to sacrifice much to save quite a  bit of money.

Eliminate minor but unnecessary expenses

Finally, you must never forget that we live in a world that is dominated by micro transactions. These are really tricky, since you can’t argue that someone is trying scam you and we have almost no issue with small fees, so we part from our money lightly.

However, one small subscription after another and you start to lose a significant amount of cash, and you barely notice it. These small subscriptions are very often for a magazine, for account maintenance, for private network channels or cable channels etc.

In reality we  rarely use these services, mostly when we are bored and quite frankly there are other ways to be entertained. It only seems cheap and convenient with these subscriptions, but in the long run, we end up regretting the decision when we find out just how much we could have saved. The point is, you should not fall for micro transactions for products you won’t use frequently.

As you can see, being more prudent is not that hard. All it takes is some effort and minor life changes, but there are long-term benefits for those willing to apply them. Make sure you go through the links in this article, as they can tell you how to save and how to think before investing, and they can also help you earn a bit extra.

Remember to operate within the borders of your daily budgetnand to invest in items that can help you save more money in the future. If you manage to do this, you should be just fine.

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Djordje Todorovic

Blogger, Gamer Extraordinaire

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Last Updated on September 2, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

    Reference

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