10 Personal Finance Tips that Work
by David Russ
Do you find yourself stuck in a financial rut? Making improvements to your personal finances doesn’t have to be complicated. Small improvements can add up to significant financial advances over the long term. Think carefully about how well you’re using the following means of financial success.
1. Make sure you’re spending less than you’re earning. This is the most obvious of all financial success rules, dating back to before the invention of cash. Yet, curiously, this is the rule most people break. If you’re spending more than you’re earning, you can expect sure financial failure.
2. Make sure you’re getting all of your employee benefits. Many employers offer incentives to encourage investing in your health or your retirement. You may qualify for special health insurance deals or medical discounts. In particular, matching fund investments or company stock purchase discounts can add up to significant short-term gains for you. Many have turned these significant short-term gains into substantial retirement wealth when compounded over many years.
3. Have physical copies and digital records of all transactions. You can’t learn from your mistakes if you can’t readily examine your past. Being able to actually see where your money is going, instead of estimating, can be a real difference-maker when it’s time to re-evaluate a budget. Further, any legal or ownership disputes can be more easily resolved with detailed records.
4. Save money for at least three purposes every month. Everyone without a soon-terminal illness should have the following:
a) an emergency savings account with at least half a year of income in it;
b) a savings account for accruing liquid assets that can be converted to long-term investments at a certain point; and
c) a long-term or retirement investment account.
There are various other types of investments that you might also consider making regular contributions to, such as college funds. So at the minimum, you need to have a portion of your monthly income set aside to ensure a steady, upward financial trend.
5. Make financially motivated optional spending decisions. Saving money on a limited income is best done by minimizing optional spending until you’ve achieved an adequate level of financial freedom to cover them. Most people fail to recognize optional expenditures. For example, your long-term financial success is in part dependent upon eating healthy food, but you have an option between spending $1 on homemade salads and $8 on restaurant salads.
When facing such a decision, the rational decision-making process is to decide whether you place more value on the benefit of the restaurant salad and dining out experience or on financial success. There is no right or wrong answer, as you must set your own priorities in life. You simply need to know that the optional purchase decisions that you make will factor into the level of financial success you achieve.
6. Become wise about investing. You must gain as much knowledge as you can about how to invest money in order to increase your wealth. You must not stop at knowledge, as you must consider carefully the risks involved with various investments and decide in advance how you will handle investing. Many people know the so-called rules of investing but let their emotions, specifically panic, make bad decisions for them. Make a sound, long-term investment plan and stick to it.
7. Increase your income potential whenever possible. You should always be on the alert for income opportunities. They need not require you to invest heavily, contrary to what many people who want a piece of your wealth will tell you. In some cases, it may simply mean taking advantage of an employer sponsored educational opportunity. Likewise, there are often special employee advancement and training programs you can join. Even getting a job that will give you additional experience to help you run your own business can make a significant impact. Financial success is far more difficult if you have a career path or a string of jobs that in a best-case scenario leaves you at a low income level.
8. Treat personal debt as a progressive disease. Corporate debt is an important part of success, but personal debt should not be confused as the same. You are solely responsible for your finances. You can escape from some debts but not without consequences that will hinder your financial success. Then there are other debts that are inescapable and can haunt you for life. Generally, the only legitimate reason for personal debt is an immediate risk to your health or the health of someone you’re responsible for. There may be some rare exceptions when the debt will be very short-term, such as when you’ve made a mistake and have not saved enough money to pay your taxes or when you’re facing a serious legal difficulty.
9. Know and insist upon your market value. If you’re self-employed, this means charging what you’re worth and taking the jobs that pay the best. If you work for someone else, it means taking raises or changing jobs. It isn’t always easy to ask for more money, especially during tough times. You should keep feelers out for job openings and always have a secret backup job option in place before pushing for a pay increase. This will give you an accurate knowledge of your worth and the freedom to ask for it. This doesn’t mean you should take another job over a few dollars of difference; it means that you stay within range of your true market value and that you be willing to make the change when the difference becomes significant.
10. Stick to your financial plan. Just as you must stick to your investment plan, you should stick to your bigger financial plan. There is little purpose in developing and sticking to a financial plan for a short period. You can think of a good financial plan as a key component of a good lifestyle.
Everyone is born with different talents, degrees of wealth, and financial environments, but financial success is ultimately based on how well you utilize what you have to attain wealth.