If you’re like most people, financial independence is your ultimate financial goal. The road to a financially care-free lifestyle requires planning and dedication and even a bit of luck. But you may need to fix your finances today, before you can plan for a financially secure tomorrow.
5 Basic Tips to Fix Your Finances
Personal finance can seem like a complicated topic, but in reality it’s really quite simple. That’s not to say it’s easy, but if you’re having money problems then the solution to fix those problems usually very basic. Here are five simple tips you can use to fix your finances and get closer to your financial goals.
1. Use FIRE Financial Calculations
If your aim is to be completely financially independent, you’re going to want to save up a lot of money. The big question is: how do you know how much money you need to save?
A lot of people simply give themselves a rough estimate and run with it. The problem with this is that you can’t call yourself financially responsible and then go ahead and wing it when it comes to numbers. You need to know some exact figures. This is where the four per cent rule comes in.
It’s known as the safe withdrawal rate. Add up all the money you need to withdraw every year for expenses. This is your four per cent. To get to a hundred, all you need to do is multiply it by twenty-five. This way you can withdraw that money for at least twenty five years, if not more. When this is coupled with your annual after-tax income, you will be able to come up with a good savings plan.
How you’re going to save for this money is up to you. There are a lot of calculators online that will tell you how much money you should put away after every paycheck.
2. Supplement Your Income
When it comes to saving money for investing, the process can take quite a while. Even when you dedicated a large percentage of your income to savings, you will still need years or decades to reach your preferred number.
Savings money isn’t easy to come by unless you supplement it. It’s the simplest possible solution. Earning more money will allow you to save up more than you could have imagined before. A short term increased money influx would let you reach your long term goals in a much quicker fashion. With additional funds, you can dedicate more money to investments that will pay off in the long run.
There are a lot of ways to earn more money. Some people opt for getting a second job. This can be pretty stressful considering hours may vary and dedicating sixteen hours of your day is going to end up being bad for you. You don’t want to burn out while trying to achieve your financial goals. Alternatively, you can get yourself a side hustle. A secondary mini-job might allow you to have additional income to invest in more assets that can grow. Anything that doesn’t take up a large chunk of your time will allow you to make money without too much hassle. Finding such a job isn’t too easy, but it’s manageable.
3. Avoid Credit Card Debts
Credit cards are a very interesting financial decision. In theory, they shouldn’t be all that bad for your credit and finances. When it comes to real-world applications, it’s hardly ever sunshine and rainbows. Credit card companies know that humans are fickle and impulsive. You might think you’re not the type of person to end up with credit card debt, but this can happen to anyone.
Many credit cards charge very high interest rates that compound over time. This makes them a very risky tool that might end up breaking your bank. In fact, some cards might even charge upwards to twenty-five per cent interest. Compared to the U.S. stock market annual average of seven per cent, it might seem ridiculous. You could make a solid return in the stock market and credit card debt could still eat it up.
4. Find Proper Investments
The money you’ve saved can’t just sit there doing nothing. You want your money to be well invested. A solid investment is much more profitable than letting it sit there and lose to inflation. Before you set it aside for a retirement fund, consider the many options you have when it comes to investing. For a long-term plan, you will want to purchase assets that gain value over time. This can include anything from real estate to precious gems.
If you have the time and dedication to invest in real estate, you might want to consider that path. Unfortunately, it will require quite a bit of your patience and dedication. If you’re just looking to let your money sit and accrue value, you could always consider an Index & Chill strategy instead.
5. Improve your self-control
Self-control might be one of the toughest aspects of life to improve. This is especially true when it comes to finances. Unfortunately, it’s also absolutely crucial to work on this part of your life if you want to achieve any sort of financial independence.
Sometimes you will be tempted to spend money on frivolous things that you might not really need. If you don’t get your spending under control, it could have adverse effects on your savings. You want to reach your financial milestones as quickly as possible and that means making a couple of sacrifices when it comes to luxuries. These sacrifices are only temporary, as long as you manage to save up enough money to use for later on.
It’s a very difficult step that requires quite a bit of dedication. As long as you start building good habits early on, there’s no reason you can’t overcome it. After a while, you will get used to it to the point that you don’t even consider it a difficult thing.
Financial independence might seem like an unattainable goal when you start out, but it’s perfectly doable with the right kind of mindset. If you’re willing to take the difficult steps necessary to fix your finances, you will end up with just enough money to relax for the rest of your days.
Lucas H. Parker is a business consultant, a marketer, and a freelance writer. Doing research, exploring and writing are his favorite things to do. Besides that, he loves playing his guitar, hiking and traveling. Lucas lives in Sydney, Australia.