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By following the 5 most critical personal finance tips outlined below, you are going to see a major improvement in your finances and achieve wealth that you didn’t think was possible. Let’s get started!
The original article has been edited here for length (…) and clarity ([ ]) by munKNEE.com – A Site For Sore Eyes & Inquisitive Minds – to provide a fast & easy read.
#1. Track Spending
The first and arguably most important personal finance tip is to track your spending. You can do this however you want, you just have to make sure it works for you…
- some people may put together a budget and track all of their spending every month,
- others might only focus on certain categories like eating out or entertainment where they spend the most money,
- still others might just loosely monitor their spending and not do anything formal.
The choice is yours, however, I do suggest you try to budget for a year, if possible. The reason is simple: chances are…doing this will surprise you with how much you spend each month on groceries or on entertainment. By seeing how much of your money and where it is going can allow you to make small changes to free up more money to save and, as you will see shortly, the more you can save, the better off you will be.
#2. Set Goals
The next step in improving your finances is to set goals. What do you want out of life? Not just financially but in life in general? The more detailed you can get about your goals, the faster you can improve your finances and reach financial freedom. Here is how this works:
- Most people aimlessly spend money on things that they think will bring them happiness. In reality, the things they are buying have no meaning to them.
- If they instead set goals and knew what had meaning to them, they would spend money smarter and get more pleasure out of those purchases. For example, if your goal is to retire early, then chances are you are going to try to limit some frivolous spending.
By having a goal of early retirement, it will make spending less on things you don’t need much easier for you and this will result in you enjoying the ways you are spending your money and bring you joy knowing you are getting closer to your goal.
#3. Avoid Lifestyle Inflation
The next of the personal finance tips to get ahead in life is to avoid lifestyle inflation…i.e. lifestyle creep. This is when you buy more and more things as your income rises…The more you can avoid this and keep living your current life, the better off you will be. [Read: How To Avoid Lifestyle Creep & Create A System For Financial Success]
#4. Save Money
How do you avoid lifestyle inflation? You save money. When you get a raise, you save it and not spend it. In fact, the biggest factor in becoming wealthy isn’t how much you make or how high of a return your investments earn. It is how much money you can save.
- The more you can save, the better off you will be. This is because the higher your savings balance, the more compound interest gets to work for you. In the beginning when you don’t have a lot of money, the interest you earn is minimal but, as your balances grow, the interest you earn turns out to be a lot of money so make it a point to save as much as you can.
- Start out by paying yourself first. This means invest in your 401k plan and set up an automatic transfer to your savings account every time you get paid.
- Use whatever amount of money you think you can afford, then add 10% to it. Do this because we tend to underestimate how much we can save. From there, when you get a raise, save the majority of it. When you come into a windfall of money, save that.
If you can become a saving machine, you will reach financial independence a lot sooner than you ever thought possible.
#5. Invest Money
While saving money is a…[most] important personal finance tip, you still need to make sure you invest your money.
- You cannot get the rate of return the stock market offers with a bank savings account and you need this growth to reach your financial goals.
- If you just leave your money in a savings account, it isn’t going to grow very much and you will be losing out to inflation every year. The result of this will be you losing wealth and not growing wealth. Luckily there are ways for you to invest in a conservative way so that you aren’t taking on too much risk.
Take the time to build a portfolio for your needs and start investing your money and profiting off of the growth.
Final Thoughts
At the end of the day, following the above personal finance tips will help you to grow your wealth and reach your financial dreams but you have to follow each of these tips to get there. Skipping out on any of them will result in you not reaching your full potential so take some time and work through this list. As you do, you will begin to see an improvement to your personal finance picture and will be on your way to living the life of your dreams.
Related Articles From the munKNEE Vault:
1. How To Avoid Lifestyle Creep & Create A System For Financial Success
Most people get some kind of raise each year. They earn a little more than they did in the year before. Without a plan to save that raise, it’s very easy to use it up by adding a few luxuries or consumption to your regular spending.
2. How to Retire With Less Than $1 Million in Savings
The sad truth is that many Americans are vastly underprepared when it comes to retirement savings with a 2016 GoBankingRates survey revealing that 33% of Americans have nothing saved for retirement at all and, in total, 56% have less than $10,000 saved. [That begs the question] “How much money does it actually take to retire comfortably?” It seems like one million dollars is the magic number many people think of but is it really necessary? Could some people could get by in retirement on less? Let’s explore all the different ways you could live a happy retirement even if you don’t amass a million-dollar nest egg.
3. You’re Probably Investing The Wrong Way For Retirement – Here Is A Better Way
In my view, most people who are selecting stocks for their retirement are doing it wrong. Most investors are picking “good companies,” stocks that have gone up a lot in the past, stocks of companies that are soon to release higher earnings, or stocks that have been selected because the technicals look good. All of these make for lousy long term investments. Here’s a better path to retirement bliss, one that’s much more likely to work out if you are prepared to put just a little bit of time and effort into your portfolio.
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