Posted in Budgeting on May 6, 2020
Money might not be the key to happiness, but if you want a stress-free and successful life, then you need to learn how to use your cash correctly. Financial planning is the practice of figuring out exactly how you’re going to use the money you earn as effectively as possible. This might mean figuring out how much you’re going to put in your savings each month, or simply coming up with a plan to control debt.
Unfortunately, financial planning strategies aren’t something that most of us learn about in schools. Because of this, it can be difficult to figure out what you should be doing with your salary each month. Here are some top tips to get you on the right track.
A lot of people assume that if they want to achieve financial independence, they need to avoid loans entirely. Unfortunately, unless you’re a very wealthy, or very lucky person, you’re probably going to need to take out a loan eventually. The key to success isn’t avoiding loans, it’s knowing how to borrow in the right way, and keep track of your debt.
Keep an eye on everything that you use to borrow, from credit card debts, to loan payments, and cash advances. A good rule of thumb is that your total monthly debt shouldn’t account for more than 36% of your monthly income. If your loans cover more than that, consider adjusting your budget. Perhaps you could reconsolidate your loans or find a way to cut costs on monthly expenses so you can pay off your debt faster.
For many people, owning a house is one of the biggest examples of the American dream. There’s nothing quite like having your own property that you can decorate and change according to your preferences. However, it’s easy to end up over-spending on a home because you don’t realize how expensive it’s going to be.
Avoid being house poor by thinking about more than just what you can afford on a mortgage. You need to also keep other costs in mind too, like taxes, and paying for home insurance, remember. A good rule to follow is that you should buy a house that costs no more than 3 times your annual income. That means that if you and your spouse earn $100,000 combined each year, you would spend up to $300,000 on a house. Try to avoid spending the maximum amount, just in case your income suddenly changes.
Savings are a crucial part of achieving financial independence. Your savings give you some peace of mind and support when the unpredictable happens in life. While, in an ideal world, you would save as much as you could afford to each month, it’s easy to let other expenses get in the way of your saving strategy. To make sure that you have plenty in your pot for the future, the best thing to do is ensure that you’re saving at least 10% of your income every month.
Remember, that 10% that you’re saving for the future doesn’t include the money you’re putting towards your retirement. You need 10% of your income to go into your retirement fund, and another 10% to go into an emergency fund or savings strategy that you can use towards your future goals. This will help to protect you as you head into the future.
Finally, remember that it’s important to be realistic about your saving expectations. While it would be nice to save thousands of dollars towards the future every month, if you earn a very low income, that isn’t going to be possible. Create a budget that not only gives you the cash you need to reach your goals but also allows you to live according to your means in a way that’s going to feel comfortable for you.
If you notice that you need to cut some expenses down in your budget, then you can think about ways of potentially cutting costs. For instance, you could look into reducing the number of times you eat fast food each week. This would improve your finances and have a positive impact on your health too. Just remember not to cut something down completely too fast, or try to get rid of too many things from your routine at once. The harder your budget is to stick to, the easier it will be to fall off the wagon.