According to statistics, almost 65% of Americans do not have personal savings. Meanwhile, the ability to save is the main condition for well-being. In this article, we will tell you how to plan finances to stop living from paycheck to paycheck and increase capital without austerity. Here are Golden Rules for Personal Finance Management
1. Goals Instead of Desires
For a dream to come true, it must become a goal. Determine what exactly you want to achieve and in what time frame. The goal can be anything: buying an apartment, repair, traveling, education for a child, saving for a comfortable old age, passive income, creating a financial pillow. The main thing is to focus on and understand the value of your desires.
2. Coun Your Income
When the goals are indicated, you need to understand where to get the money for their implementation. To do this, predict the income for the coming year – write down all sources and amounts of income. Income may consist of salaries, bonuses, tax discounts, social benefits, rentals. Irregular incomes – for example, from one-time part-time jobs, dividends, interest on deposits, gifts for the holidays. It is better to consider, using the average values for the year.
3. Consider the costs
Uncontrolled day-to-day spending is what destroys our financial plans. Examine your monthly cash flow to understand where the money goes and how much left for long-term goals. Also, to everyday expenses for groceries, food services, travel, be sure to consider regular expenses: for communal services, mortgage fees, mobile communications, Internet, taxes. The costs of the purchase of clothing, shoes, equipment, household goods can be calculated in total for the year.
By detailing expenses, you can see patterns in your financial behavior and identify unnecessary small expenses that quietly but surely eat up the budget. It is better to reduce such expenses, and save the saved money on forming a financial pillow.
4. Optimize the budget
It may turn out that your plans do not fit into the budget. And to achieve them you will need to find an extra source of income, cut spending or revise deadlines. For example, you can refinance a loan at a lower rate, discuss a raise with your superiors or find a job with a higher salary. You can increase income at the state’s expense. For example, choose a more favorable taxation regime, get a tax deduction for treatment and apply for the benefits due.
5. Making money work
If the calculation of income and expenses has shown that you adhere to the principle of “spending less than you earn,” you have free money left in your hands. Your task is to dispose of them. Part of the savings should be divided between financial goals, and the rest should be invested in reliable products. Investments will provide passive income and help to accumulate for the goals.
Before investing, First, determine your attitude to risk and the desired profitability. This is called risk profiling, you can go through it with a broker.
The choice of investment products and the distribution of funds between them will depend on the risk profile. For those who are not ready to take risks, conservative instruments — OFZs, bonds of reliable companies, endowment life insurance, and bank deposits — are suitable. They provide low income and ensure the safety of capital. If you are willing to take risks for the sake of increased profitability, you can add aggressive instruments to the portfolio – stocks and mutual funds. But keep in mind: the higher the yield, the higher the risks.
For help in financial planning and choosing the right investment solution, you can contact our financial advisors. An expert will help to create an investment portfolio taking into account your goals, opportunities, and attitude to risk.
In Short (Personal Finance Management)
- First, Articulate financial goals – that should turn into a concrete action plan.
- Start keeping records of income and expenses because this way you will see where the money goes and how much you can count on in the end.
- Find a way to optimize the budget by adding to the salary, reasonable savings or benefits from the state.
- Invest free money to get additional income and accelerate the achievement of your goals.