The following is a guest post by Sarah Barnett. If you would like to write for this blog, please check out the guidelines here.
Being one paycheck away from personal disaster is stressful. Flying by the seat of your pants may be a free spirited way to live, but it provides very little security. Financial planning empowers you to cope with life’s curve balls. A little bit of advanced preparation is essential to staying ahead of the game.
It doesn’t necessarily have to be complicated, either. Many people feel intimidated when faced with the prospect of organizing their finances. The good news is that anyone can make simple changes to improve their financial outlook. Here are five simple ways to do this.
5 Simple Financial Planning Tips
1. Spend less than you earn
This seems like a simple enough concept, right? However, this can be much harder to do than one might think. Over spending is a huge factor in financial health. It can help to set limits on what you buy. Pay bills first, purchase necessities second. Dedicate a specific amount of your paycheck to a savings account. Whatever is left over is what you have available to spend on other things. Never charge anything to your credit card that you can’t afford to pay off immediately.
2. Write out a budget and follow it
If you have no clue how you spend your money then it is very difficult to begin saving it. There are many tools online to help you. Once you have done this, don’t get sidelined. Avoid distractions and be ruthless about it, regardless of how nice that new car might make you feel.
3. Have a savings plan
Although this was mentioned briefly before, financial security means that you have the resources to pay for emergencies. Every time you get a paycheck, put aside a specific amount. Think of it as if you are paying yourself before anyone else gets a piece of the pie. You might be surprised how fast this adds up. A good rule of thumb is to shoot for two months of wages in reserve.
4. Investing is important
Once you have built up a cushion, start investing your extra money. Retirement plans are a great way to protect you future, when you are too old and feeble to work. Do you think you don’t really need it? Think again, because experts warn that social security benefits are likely to be cut in the future. You can’t afford to depend on them.
5. Pay off debt
This includes credit cards, student loans, vehicle loans, or any type of personal debt you may have. To keep it from becoming overwhelming, create a plan for eliminating debt one loan at a time. Start with credit cards, since these usually pack an interest rate punch. Once you have paid off one piece of debt, move on to the next until it is gone.
Your Own Approach
You may be looking at the list above and wondering whether you could ever take some of the actions that are mentioned. Is it realistic, for example, for you to come up with a detailed savings plan?
If you’re struggling to get your head round how you would approach some of these issues, then you probably need to stop and focus on your aims. What are you trying to get out of the process?
It’s likely that you’re taking an interest in financial planning because you already perceive that you have some problems associated with this area of life. It may be that your personal finances are in trouble because you spend too much money. Alternatively, it may be a lack of income that appears to be holding you back.
Don’t forget about these concerns. If these are what made you contemplate the need to carry out more financial planning then they should also drive you to put plans into action. Motivation is an amazing aspect to life and its power is not to be under-estimated.
There’s no reason why your financial planning can’t be successful. Don’t be held back by your own inertia.
About the Author: Sarah Barnett takes a keen interest in the world of business and finance. Operating a personal finance website, she helps many people to tackle financial problems.