Financial management can seem difficult. Most people know that they have to change in their financial life but aren’t taking any action. Why? Because making that financial change seems daunting, hard, or overwhelming.
However, you can improve your financial situation, one step at a time. You just need to focus on the right things.
This journey isn’t going to be perfect nor easy. But if you want to take control of your financial life and break free from the stress that comes from debt or money, here are some steps you can start with today.
- Know Your Net Worth
Your net worth will let you know where you are in terms of finances. It’s categorizing which factors in your life are assets and liabilities. You calculate your sources of income or things that make you money and then subtract those that cost you money (ex. debts & bills). The resulting number is your net worth.
Knowing your net worth can be an eye-opener. It will also help you track your progress as you change your financial life for the better.
The way to increase your net worth is to save and invest.
If you have debts or loans, then your first plan of action is to pay them off. Having debts or loans will most likely put your net worth in the negative. If that’s the case, then your goal is to start fresh.
Once you have a clean slate, you can now set a goal for yourself. For example, you want to target $10,000. Once you reach that goal, then set another one.
- Read Books
There is a lot of financial knowledge and advice out there from experts, successful investors, and self-made millionaires. Learn how to take control of your finances and get out of debt from different people coming from different angles. Similarly, if you’re thinking about home loan refinancing, upgrading your house, or buying your own home, then you can read books on them first before pushing through with the idea. You can learn bits and pieces from different books that you can apply to your own life.
- Start Budgeting
This is the most basic rule in managing your net worth, and one that you’ve probably heard countless times.
You have an idea where your money is going by now, so you know what’s important, and which ones are just draining your resources.
Now is the time to start allocating where your money will go. As a rule of thumb, you should only be spending 25 percent of your total income. The rest will go to your savings or investments. But, that isn’t usually the case.
The important thing here is to track your spending. That way, you can fix your budget by eliminating unnecessary spending. You will go through revisions until you can find the balance where you can live comfortably while saving heftily.
- Take Out Expenses You Don’t Need
Do you need to be subscribed to Netflix, Hulu, Disney+, and Cable all at the same time? Are all these very important for your job or health that you can’t live with just one of them?
Cut your monthly bills and start with your mobile subscriptions and your cable subscription. While you’re at it, cut back on eating out and choose to eat at home instead. Eating at a nice restaurant is OK, once in a while. However, learning how to cook your own meals and packing lunch to work will help you save a ton of money.
- Invest
You know where your money’s going and you have a sound plan to cut off unnecessary expenses, so what next? Now, you can think about investing to improve your cash flow.
Investing your money will allow you to grow it much faster and at a higher rate than a bank could offer you. For example, you can just have your money sit in the bank and earn 1% every year. When you invest wisely, you can earn double or triple that annually.
Do your research before venturing into the stock market. Don’t dive headfirst as it can lead you to get stock market broke rather than stock market rich. Invest in something that you believe in and have envisioned to go on for a long time. When it comes to investing, focus on the long-term goal. That way, even if the market goes down, you know that over time, it will most likely go back up.
Note that when it comes to investing, only invest money you can afford to lose. This means investing extra money that you don’t need. This will free you of any tension or stress that would otherwise be present if you’re attached to the money you’re growing. As a result, you’re going to be more logical in making decisions that will be favorable in growing your assets.
Gain Control of Your Expenses
It will take time before your financial situation changes. You won’t become a millionaire overnight, but if you change your spending habits, you could pay off your loans or debts faster, or even buy your first house. Incorporate the right financial habits into your life, and with the right mindset, you could be on your way to financial freedom.
