By the end of every month, when you receive your salary, most of it goes directly into covering the basic monthly expenses, and you may be able to save some of it for emergencies. Sometimes we question whether we could ever safe enough to fulfil our future plans. To save and also manage your finances may sound like a complex task however it is not rocket science, a little thought and attention can increase your saving capabilities for emergencies, for the future and for retirement. From creating a budget to eliminating unnecessary expenses and saving for your retirement, small steps can lead you to a financially secure future.
1. Create a budget
The first step to taking control of your finances is doing a budget. It will take a little effort, but it is a great way to get a quick snapshot of the money you have coming in and going out. Without an effective budget, you might spend your cash on things that seem important now, but don't offer much in terms of enhancing your future. Many people get caught in this quagmire and get down on themselves for not reaching the financial milestones they want for their family and for their own life.
2. Specify your goals
While doing the budget, it is always advisable to take some time to write specific goals about what you want to do with your life and the money you'll need to meet your goals. For example, your goal to travel the world affects how you will plan your finances. Your goal to retire early is dependent on how well you save your money now. Other goals, including home ownership, starting a family, moving or changing careers will all be affected by how you manage your finances.
3. Understand your income & expenses
Once you have written down your financial goals, the next task is to understand your income and corresponding expenses to calculate savings for the realisation of your goals. This ensures that you are paying the most attention to the ones that are of the highest importance to you. You can also list them in the order you want to achieve them, but a long-term goal like saving for retirement requires you to work towards it while also working on your other goals.
4. Manage your debt
If you have loans or owe money on credit cards it usually makes sense to pay off the debt that charges the highest rate of interest first. Debt is a huge obstacle for many when it comes to reaching financial goals, so make eliminating it a priority. Set up a debt elimination plan, to help you pay it off more quickly. For example, while making minimum payments on all of your debt accounts, pay any extra money towards one debt at a time. After paying off one debt account, move all the money you were paying on the first debt to the next debt and continue from there, creating a debt-paydown “snowball effect.”
Once you are totally out of debt, make a commitment to stay out of debt. Always leave your credit cards at home, and save up an emergency fund to cover unexpected expenses so you do not need to turn to a credit card to cover them.
5. Slash or remove unnecessary expenses
There is no fixed rule or guide in terms of how much you save. No one can suggest what you should do with your money. However, it is always advisable to cut unnecessary expenses to save money for the future. Cutting these unnecessary expenses will help give you the freedom to save, to prepare for the future, and deal with the inevitable crises that life throws at you. The bigger the gap between your income and your spending, the better would be the saving to meet your specified goals.
6. Create an emergency fund
No matter what kind of lifestyle you have or at what stage of life you are in, it is a must to have an emergency fund for yourself and your family. Establishing an emergency fund will allow you to deal with unexpected expenses which have not been budgeted before.
7. Make smart investments
It is always advisable to get the right investment portfolio as per an individual’s risk profile to achieve your financial goals. There are multiple investment options available, but each one is not suitable for everybody. With proper risk profiling and goal planning, one gets to know the right investment product, so that all goals are achieved comfortably, without taking unnecessary risk. Review and rebalancing is an important step of financial planning. In case there is a change in the market, one gets to know immediately at the time of reviews and can take action accordingly.
8. Save for retirement
Retirement planning should always be a priority. Once you start earning, you should start investing for your retirement. Determining factors here are your age, your chosen retirement figure, and your assumptions on your expected future income.
Keep these simple rules handy. As it is generally said that you do not become rich by earning but by saving.