“Nobody cares about your money more than you do.” No matter how devoted and honest a broker, a banker or an investor is, nobody will look after your money the way you will. Today, this option is available for almost everyone with a smartphone and an internet connection.
To build a financial future that meets your needs, you must learn how to save and invest, set financial goals, and master the art of conscious spending.
While the effects of the housing crisis, the market meltdown, the controversy over credit card policies are unavoidable even by smart money managers, their effects can be mitigated.
Money management and investing aren't rocket science. By learning personal finance and investing basics, remaining level-headed and consistent in your money activities, you can enjoy wealth without paying for a financial advisor.
Where To Start
Setting Up Savings Accounts
When you’re getting yourself on track toward financial security, building up your emergency savings fund is priority number one. “Savings act like a shock absorber for your personal finances,” says Matt Hylland, renowned financial planner at Hylland Capital Management. A savings account helps you avoid using your line of credit to cover emergency expenses, which is smart considering credit card interest rates can reach 20%.
Save aggressively until you accumulate at least three months’ worth of expenses to cover a financial emergency. Once you have an emergency fund saved, you’re ready to start focusing on other financial goals.
Financial planning is all about goals. There are two islands: what you have and what you want. The bridge between the two is your personal finance budget. Getting to where you want to be requires vision, planning and discipline - the vision to know what you want, a plan to get there and the discipline to stick with your plan. Think about your short-term goals, such as paying off credit card debt in one year, intermediate term goals, such as saving for a down payment on a house in three years; and long-term goals, such as sending your kids to college in 10-15 years and retiring in 30 years.
Write down your goals and make sure to assign each one a dollar value and a deadline. This will help make them more real and hold you accountable. Keep the list in sight to help motivate you as you work toward achieving your goals!
Your Initial Assessment
Calculate your net worth by subtracting your debts and liabilities like mortgage loan or credit card balances from the total amount of your assets like your retirement and bank account balances. Then calculate what you can reasonably save each month, if anything, after you’ve covered both fixed costs like rent or electric bills, and variable costs like eating out or shopping. Don’t let the numbers get you down at first. Be empowered by the fact that this financial planning will get you moving in the right direction so you can turn that around!
Budget Like A Boss
Financial order is impossible without a well-maintained budget. This does not just help form a visual picture of where your money goes, but makes you want to cut down on your daily expenses as well. Eating out often may not look too significant until you add up your monthly lunch expenses, which is why you would definitely want to think twice about your decisions.
If you do not know how to make a budget, there are numerous templates and tables available online. You can also use mobile apps, such as Monefy, Goodbudget and Money Lover, some of which even have financial advice based on your income and expenditure patterns.
It is wise to allot certain percentages of your income for each category of your expenses after around three months of thorough observation, e.g. you could allocate 40 percent on housing and utilities, 15 percent on food, 10 percent on transport, 10 percent on clothing and entertainment, and 25 percent on savings. These obviously vary among individuals, but anything is alright as long as your expenses do not exceed your income.
However, try to allocate more for savings, especially at an early age. You will not just grow a good habit out of it, but also understand why Warren Buffett says, “Do not save what is left after spending, but spend what is left after saving.”
More broadly speaking, your budget can be summarized as follows:
Control How You Spend And Learn Self-Control
I’m not a big believer in detailed budgets. They work fine for some people and if you’re one of them, that’s great, but for many others, a broader budget makes more sense.
Whatever you decide to do, start tracking what you spend. Sign up for a service like Mint and start watching your pennies the same way you watch your calories.
Some people think frugality is a bad thing. It’s not. Frugality is an important part of personal finance. While it’s true that you can save tons of money by being smart when you buy a car or a home, chances to save on these things don’t come along very often. But there are tons of opportunities to save at the grocery store or when shopping for your kids’ clothes. Make the most of them. Save on the big stuff and the small stuff.
The bottom line? By practicing conscious spending, you can spend on the things that are important to you while pinching pennies on the things that don’t matter.
Now if your money just disappears as if some sort of reverse tooth fairy is picking your pockets, keep all of your receipts for one month. Take all of your receipts and look at what you spend, it could change your patterns in the future.
If you have a problem with budgeting and spend more than you should, consider setting up a separate spending account.
Limit and Manage Your Debt
The only way you’re going to get out of debt is to start spending less than you earn. I know that some people run into tough life situations, consumed by medical problems or catastrophic accidents. But most people are in debt because they buy things they can’t afford.
Those who have managed to get rid of their years of overwhelming debt have taken a serious decision. They’ve stopped waiting for help and decided to help themselves. If you’re willing to put in the time and effort, you can get out of debt. All you need is thorough planning and dedication.
Before taking decisions regarding loans and debt be sure to simulate their effect on your budget and goals. The Bank Med Simulator, Bank Audi car and home Loan Calculator and BLC Bank Toolkit are great tools to compare alternatives and simulate how they fit into your budget.
If you’re thinking of buying a house and putting on long term debt, you can make an informed decision by using Al Ikaria Real Estate Calculator. You can compare mortgage periods, rent vs buy alternatives and it even lays out your affordability based on your income and debt.
Once you’ve taken control of debt, you need to avoid it in the future. To do that, you need to learn how to use credit wisely. After you’ve built up your emergency fund and started contributing to your retirement plan, turn your focus to paying off debt quickly, especially if it’s high-interest debt like a credit card.
Quicken Starter Edition can help — it allows you to identify and collect data on all your sources of debt, then create a personalized repayment plan that fits within your budget. Simply following a budget eliminates excess spending that might otherwise result in debt and paying for purchases with cash instead of credit can help you avoid "accidental" debt.
Spending the time now to make a budget and manage your savings safeguards your financial security for years to come. That’s the best return on investment you can get.
Manage Your Credit
Credit can be a convenience, or it can kill you. Establish some ground rules: don’t buy on credit things wouldn’t pay cash for, pay off your balance at the end of every month, and always read the fine print. Pick a card that works for you from a site like Bnooki where you can compare more than 500 loans, cards, accounts, and more from 21 Lebanese banks and use it responsibly. Don’t just accept a card that is loaded with fees, and high rates.
Compare interest rates on credit cards and savings account and always check the compounding period because it changes everything.
If your employer offers a retirement plan, it’s usually a good idea to take advantage of it especially if they offer other forms of contributions. Whether or not you have a retirement plan at work, look for long-term savings programs at your bank, buy long term risk-free bonds or even invest in low risk stocks. These are easy ways for individuals to set money aside for the future.
What should you invest in? First off, don’t make the mistake of believing that you need a broker or adviser to pick your investments for you. Studies show that paying others to make these decisions for you generally costs more than you gain from it — if you gain anything at all. If you want to learn about stocks and bonds, take an online course about trading or buy a book about it. It’s an investment with the greatest of returns.
Increase Your Cash flow
Now it’s time to turn your money into more money. First, ask for a raise!
Many employees miss out on potential earnings and savings because they fail to ask for a raise. One thing you have to know is that employers will almost always seek to lower costs and so it is your responsibility to push towards getting a raise.
Another way to increase your cash flow would be to invest in cost-reducing projects such as installing solar panels to lower electricity expenses. The project would require a large initial cost but would cut down your running costs and monthly expenses. After a few years, you would have made back your initial investment and would have less costs to deal with.
Then, look for ways to cut down on taxes. Many investments and expenses are tax exempted. Solar panel installations in Lebanon are interest free and electric cars and motorcycles are exempted from customs taxes. There are many opportunities to take advantage of in terms of reducing taxes and in the long run they will bring great ease to your financial life.
Finally, educate yourself on the basics of investing, including the differences between stocks, bonds, mutual funds and exchange-traded funds, the risks and costs involved, tax implications, and the importance of diversification. It’s important to invest in something you understand.
Next, set up separate accounts for each of your goals. Each goal will likely require a different investment strategy because of differences in time horizon, risk tolerance, and growth expectations. You’ll help yourself tremendously by setting up automatic monthly contributions to each account, choosing low-cost investments, and maximizing savings in tax-advantaged accounts like your savings account and other long term programs.
Best Tools For Personal Finance
Spreadsheets can be a very helpful money management tool. To avoid creating one yourself, try using Mint.com or another online money management tool; the website/app combines all of your financial accounts in one place, tracks your spending and helps you create budgets.
If you rely on your credit card, MasterCard in Control, an online program, helps cardholders establish their own spending limits such as where, when, how and for what the card can be used and sends alerts if you exceed your limits.
When it comes to real estate Al-Ikaria Calculator is a great place to start and if you’re going to take a loan from a bank don’t forget to always compare and simulate different alternatives and their impact on your budget and goals.
If you’re looking for lost dollars, You Need A Budget helps you keep track of expenses, bank accounts and debt. This award wining software will make every penny count.
Acorn, on the other hand, is an app that helps you invest your spare change. Once you connect your checking and credit card accounts to it, Acorn automatically rounds up every purchase to the next dollar, and invests the difference in a portfolio of your choice. For example, if you spent $2.25 for coffee, it will invest $0.75 for you.
Level Money calls itself the “mobile money meter.” Once you connect the app to your bank account, it automatically calculates your income and recurring bills, and then suggests what your daily, weekly, and monthly spending should be.
Wally is an expense tracking app that shows a complete picture of your expenditures. You can view how much you’ve spent daily, weekly, or monthly, while dividing expenses into separate categories.
A great way to start learning about personal finance is to read personal finance blogs. Instead of the general advice you’ll get in personal finance articles, you’ll learn exactly what challenges real people are facing and how they are addressing those challenges.
None of this is too hard to do, but many of us fail to learn the basics and build healthy financial habits. And it doesn’t help we live in a society that is hell-bent on encouraging us to spend, so it can be tough to master the mental side of money. The goal is to help as many people as possible realize they can be masters of their financial destiny.
Taking charge of your own finances has a powerful side effect: when you encounter new financial situations like buying a home or starting a business, you feel less intimidated. You’re able to grasp the basics quickly and can have the confidence that you’ll be able to figure out the rest. Plus, you put yourself in a position to critically question the advice from the so-called experts and make an informed decision accordingly.
So, don’t wait for someone to give you permission to do this stuff. You’re an adult. Nobody’s going to give you the go-ahead. Take charge of your own financial life today!