Managing your finances isn’t rocket science.
In fact, it is super simple once you boil it down to a few simple concepts.
The problem is, you may not initially like the results of following these concepts.
If you can stick to these pieces of advice, you’ll be well on your way to successfully managing your finances.
Track Your Finances
While most people would be better off actually following a budget, tracking your finances is the absolute minimum you can get away with. You need to keep track of all of your income and expenses in one form or another.
Personally, I use Quicken and Personal Capital to manage most of my financial needs.
I use Quicken to keep track of my day to day expenses and income, also known as my income statement. At any time, I can pull up a history of all of my spending to see exactly where my money went.
I can also check to see if a certain spending category is getting too high and needs to be put into check.
Personal Capital is where I keep track of my assets and liabilities, also known as my net worth or my personal balance sheet.
Spend Less Than You Earn
Spending less than you earn is one of the most simple rules to understand, but often one of the more difficult rules to follow.
It is absolutely imperative that you follow this rule if you want to live a financially successful life. Spending less than you earn is the only way you can save money for big goals and invest for your future. Ideally, you’ll spend much less than you earn.
Thankfully, there are two ways you can make that happen. You can either spend less money, the less fun way, or you can earn more money. More on that later.
Plan For Known Future Events
Do you know your car will eventually need to be replaced? Do you know you’ll be getting married one day? Do you know you’ll want to eventually own a home?
Once you have an idea of what you want to happen in the future, it’s time to take action. Start saving for those things today so you can be prepared when they arrive.
You can live life without car loans if you plan. You can have a wedding without going into debt. You can save enough money to put 20 percent down on your first home.
Surprisingly, some people even save enough money to pay cash for their first home. It’s rare, but it can be done.
The biggest key to preparing for these goals is figuring out when you think they’ll happen and about how much they’ll cost. Divide the cost of the future event by the number of months left until the event happens and you’ll get how much you need to save each month.
If you can’t save that much, the event either won’t happen, will have to be delayed or you’ll go into debt when it does.
If you don’t know when an event will happen or how much something will cost, make your best educated guess. Then, if you discover something will be different, adjust at that point. At least you’ll already have started saving.
Invest The Rest
When you’re spending less than you earn, there should be money left over. You’re doing something wrong if there isn’t.
You should be investing that money for your future if you aren’t earmarking that money for a specific short term goal.
Whether that means investing in index funds, mutual funds, the stock market, a business or improving your earning potential, the money needs to be invested.
If you just leave money in a savings account, it won’t grow faster than inflation and you’ll actually lose money over the long term in most cases.
Grow Your Income Potential
To accelerate your financial freedom, you can start growing your income. There are many ways to go about this.
You can further your education to help you move up in your career field. You can start a side hustle to supplement your day job income. You can start a business that has unlimited growth potential.
The number of ways you can increase your income are endless. The more you increase your income, the more you can invest and save for your future.
Doing These Thing Isn’t Always Easy
Are all of these pieces of advice fun? No, probably not.
However, they’ll set you up for financial success. Yes, it may be difficult.
Just because it is hard doesn’t mean you shouldn’t do it. Some of the best things in life are challenging.
Being in control of your financial life is well worth the challenge.
Are you in control of your finances? Which step from above do you need to work on?