Are You Doing The Right Things Financially?

Have you spent some time to review your financial position? Are you growing your wealth or getting deeper into debt?   Here are a few things to check and compare your worth since the beginning of the year. 

1.     Debt: Are you reducing your debt or adding more by spending more than what you have? To be debt-free is a top priority to gain financial freedom. Do it now to reduce your debt or else more interest will be added to the outstanding amount. When it is beyond your means you will be made bankrupt.   

2.     Income: Are you getting more income such as pay increment, bonus, or income from a part-time job? If you want to spend more you have to earn more. 

3.     Expenses: Do you monitor your expenses? Are you following your budget? Are you spending less than your income? Control your outflow is to live within your means.

No man is rich whose expenditure exceeds his means, and no one is poor whose incomings exceed his outgoings. - Thomas Chandler Haliburton

 

4.     Savings: Are you paying yourself? Is this amount included in your expense budget?  There will be no saving if you were to spend first and save later.

It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for. –Robert Kiyosaki

5.     Investment: Do not believe in get-rich-quick schemes or gambling. It is the fastest way to get into debt and become bankrupt. Are you investing for the long term like keeping stocks that are paying dividend consistently over the years? Active trading in the stock market is not investing but speculating.      

The Stock Market is designed to transfer money from the Active to the Patient. –Warren Buffett

6.     Insurance protection: Is your house adequately insured?  Is your life policy able to replace your earning power just in case you are permanently disabled or no longer around to look after your family?

7.   Net worth: Is the value of your net assets worth more than what you have since the starting of the year? The simplest way to do it is to reduce your debt and increase your savings and build your wealth through investing.

Wealth consists not in having great possessions, but in having few wants. –Epictetus

8.     Financial Knowledge: Are you reading and updating your financial knowledge. You will be wiser in financial matters. 

An investment in knowledge pays the best interest. –Benjamin Franklin

9.     Self-discipline: Are you in control of your money or a slave to it?  Think carefully before you part with your money. Resist impulse spending to avoid spending unnecessarily.

You must gain control over your money or the lack of it will forever control you. –Dave Ramsey

10.                        Skills: Your technical know-how is a great source of wealth. You can create a unique idea to strike gold and make you rich. Leverage the power of technology to enhance your earning power. 

If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability. –Henry Ford

Conclusion

 The ultimate goal of personal finance is financial freedom. Your everyday financial activities should be guided by this goal.

Getting Effective Personal Financial Education

An investment in knowledge always pays the best interest.

Benjamin Franklin

According to Wikipedia, financial literacy is the ability to understand finance. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions through their understanding of finances.

It implies that you have to get financial education by studying financial information, understand it, do it, and obtain valuable experience. You are likely to make financial mistakes along the way but you will be wiser.  

There are three stages in life to learn about relevant financial issues: 

At home:

Financial education starts at home for the kids.

Savings: It is the best time to educate your child about savings and how your money grows with compound interest.  It is also a good thing to talk about the simple rule of 72 (the time needed to double your money with a fixed annual interest rate. At 6% you will double your money in 12 years - 72/6) in relation to savings. Take the opportunity to talk about save-and-buy-later for a big-ticket item when he or she is about to buy an expensive item like a laptop or an electronic dictionary. To save and buy later is a concept on the effective use of money and avoid paying more on interest and getting into debt.        

In school:

In secondary school:

Education loan: When your child is about to enter college, polytechnic, or university, it is also a good time to talk about student loans.  Getting a loan to pursue tertiary education is not the best option. Think about it, before you get a job you are already in debt and there will be more debt to incur like car loans and mortgage. It is good to obtain a degree but there is no assurance that you will get a decent job of your choice or a job at all upon graduation.  

Higher education:

Debit cards: It is good for you to have a debit card to gain knowledge and valuable experience of using plastic cards. The card is tied to your saving accounts and each time when the card is used the amount is deducted accordingly from the account. There is no way to spend more than what you have in your savings account.     

As a young adult:

Needs and wants: Landing on your first job after graduation is a great achievement. Getting your first paycheck is a delightful thing and you are thinking of buying so many things. So it is time to learn about wants and needs, budget and living within your means. Needs are essential and wants are optional and you can go without.  A budget is a way to control spending so that it is less than what you have earned and there is still money left over every month to save for a rainy day.   

Good debt and bad debt: It is also important to learn about good debt and bad debt. Getting into debt to buy what you want is bad but getting a mortgage to buy your first house is OK because a house appreciates in value over time.  Getting a car loan is bad but how many of you can buy a car in cash? A car depreciates greatly in the first two years.  The outstanding loan may be more than the value of your car. 

Credit cards: You will also acquire your first credit card.  It is crucial to know the danger of bankruptcy relating to young people and credit cards. The wise use of credit cards is about applying the knowledge of wants and needs, following your budget faithfully, and paying the outstanding amount fully and promptly. The most important thing about credit card usage is for convenience and not to obtain credit and get into unmanageable debt. 

Creditworthiness: Smart use of your credit cards is an excellent way to establish your creditworthiness. The key is paying the amount in full when you receive the monthly statement from the card issuer. It tells the financial institution that you are a financially responsible person. You are in good financial standing to grant credit because you pay promptly. 

Net worth, assets and liabilities: Next you will learn more about your net worth, assets, and liabilities. Your net worth is what you own less what you owe.  Let’s look at an example and simplify the issue for education purposes. One of your valuable assets is your house. It is worth, say 200,000. Does it mean that you own an asset with a value of $200,000? No, because you have taken a mortgage and you still owe the bank say, $100,000 (which is a liability) and if you sell the property you only get 100,000 after paying the bank off. So your net worth for your house is only $100,000. 

Emergency fund: It is important to incorporate an amount for savings into your budget because if you are thinking of saving what is left, there will be nothing left.  One important thing about life is to save for major unexpected expenses such as car repairs, medical bills, and the like. That is why it is called an emergency fund. 

Car loan, mortgage, marriage, and family: It is also timely to plan for the down-payment for your first car and your home. Think also about the money you need to get married and start a family of your own.  

Insurance: The subject of insurance is vital for financial education. Learn to leverage insurance to reduce the impact of personal disability due to sickness and accident. You also need to cover perils such as fire, flood, and theft against damages done to your property.      

Tax: Tax is one thing you cannot ignore. Learn to take advantage of tax deductions to reduce your tax liability.   

Investment: How do you get money for investment? It is from your savings accumulated over time. You have to learn the different vehicles to invest such as stocks and shares, unit trusts, bonds, gold, and property.

   

Retirement and children’s education: You invest with a major purpose. It is for your retirement when you are no longer working and there is no regular income. It is also essential to grow your wealth to meet your children’s education needs. It is always prudent to start early to save and invest for your future because a smaller amount is needed to get started.    

Wills: The last thing to know is the creation of wills to distribute your wealth according to your wishes in a hassle-free way when you are no longer around.

Financial education is a lifelong learning process. The most important thing is to avoid gambling and get rich quick schemes. The ultimate aim of personal finance is financial freedom.

Source: Getting Effective Personal Financial Education

Financial Freedom - 7 Successful Steps

In order to achieve financial freedom, you need to, first of all, find out your current situation. When you are in debt especially credit card debts you need to settle those debts before you can start saving because the interest from the savings is very much less than the interest charged to your credit card's outstanding balance. Let’s look at the steps to be taken to gain financial independence:

1. The root of the problem: You can start paying off your debts especially your credit card debts but if you continue to adopt a lavish spending lifestyle, there will be no end to it. Find out if you are spending on what you need or what you want. Stop buying unnecessary items and be happy with what you have. You are one step nearer to reach your money goals when the problems are identified and you put a stop to it. If you are unable to give up your impulsive spending habit by using credit cards, the best thing to do is to cancel all the credit cards.

2. Allocation: Allocate an amount for essential items every month to cover food, petrol, children's education, housing loan, and utility bills. Stop spending any more on what you want.

3. Debt settlement arrangement: Look at all the credit card outstanding amount and other debts and use whatever money that is left to reduce your debts. Start by settling the debt with the highest interest rate. Select to settle a smaller outstanding amount from your debts. By doing so it gives you relief that you have settled one of your debts and give you the motivation to settle the rest.

4. Add new sources of income: You can do it right at home like I do. I write articles and I collect earnings from AdSense, though the amount is small. Two points to note here. With the additional income you can pay off your debts faster and you can set aside an amount for emergency from the extra cash.

5. Pay yourself first: When you are out of debt you can now put aside an amount every month. If you can’t do it all by yourself then you take up an investment-linked insurance policy to force yourself to save.

6. Time is an important factor in savings: The wonder of compound interest will help you to make your savings grow. The more you can save and the sooner you start the easier it is to reach your saving goals.

7. Invest your savings: When you have accumulated a substantial amount you can start looking for investment channels. This is an area that you need to be careful or else your precious savings will vanish in the air. Traditionally, you can invest in blue chips, unit trusts, and properties in selected locations.

Summary

First of all, you need to identify your financial problems and you put a stop to them. Is it unnecessary spending on your credit cards or is it your gambling habits? Spending on what you want will lead to more debts. Always set aside an amount to cover monthly expenses and pay off your debts with the balance. At this juncture, you can't start saving yet. The interest from your debt is very much higher than the interest you can earn from your savings. Pay the highest interest debt first but chose a debt with a smaller amount. You will get a little relief when one of the debts is settled. Try to supplement your income to reduce your debts faster and start earlier to save. When you are unable to discipline yourself to save, arrange with the bank for a standing order to pay monthly for, say, an investment-link insurance policy, When you have substantial savings you can look for investment avenues to give you a better ROI (return on investment). You gain financial freedom by taking these steps diligently.

Source: Financial Freedom- 7 Successful Steps