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Tips to Improve Your Personal Finance

By MicaR | Online Venture | 6 Jan 2024


“Money cannot buy you happiness but it is easier to cry inside a car rather on a bike.”

Money will bring you happiness when you know how to use it. You are happy when you have financial security and financial stability. You can become financially secure and stable when you manage to improve your finances. That’s how you buy happiness with money.

Here are a couple of things you can do in order to improve your personal finance.

Build Skills and Knowledge

Why do you have to go to college and university? Why do you have to undergo training for years? The answer is simple, to build knowledge and skills. When you have knowledge and skills, you can find jobs, you can become self-employed, or start a business and build an income.

Make Money

Except for air, nothing in this world is free. Therefore, you need money even to buy basic necessities. You need money to have a place to stay, to pay for medical bills, etc. More than 90 percent of our problems arise from “not having enough” money.

Save Money

You need to make money not just to spend it but also to save it. When you save money, you will have money to buy amenities, enjoy life by going on a vacation or buying luxury items, build emergency funds, build retirement funds, etc. When you save money, you will have money when you need it most. If saving is difficult because your earning is small, try to adjust your life for 90 percent of the money you make and save the remaining 10 percent. One of the best strategies to start saving money is by making a budget. When you have made a budget you know your total income and total expenses, and you can adjust your expenses to make room for saving.

Invest Money

Saving money will help you become financially secure and financially stable. However, saving alone will not help you improve your personal finance. That’s because when you save, your money will not grow. You have only the amount that you saved. Well, when you save money in interest-bearing accounts, you might earn some interest but that’s very poor returns. Therefore, you should start investing. When you invest, your money will grow. When the money grows, your wealth will build. There are a lot of markets for investment, you will have to try different markets to minimize your risk associated with investment. There are a lot of assets that you can buy as an investment, you also need to diversify your portfolio.  

Do you really need to make a lot of money?

You will always hear from personal finance gurus and investment mentors that you need to make a lot of money so that you can save money, invest money, and build your net worth to improve your personal finances. However, in my opinion, you do not have to make a lot of money to improve your personal finance or build your net worth. You can build your personal finance and improve your net worth even with a small income source.

Here are a few strategies that you can use:

Buy a term life insurance policy. When you have a term life insurance policy, you will not only get financial coverage but also get your insured amount by the end of your term.

Save for emergencies. You don't know what will happen in the future, therefore, you should always have cash in hand.

Invest your money. A lot of people think you need a lot of money for investment, which is not true.

Becoming Financially Stable

If you check the list of billionaires, you will see most of these people are the first generation of billionaires. In other words, these people became billionaires on their own, they did not become billionaires through inheritance. Elon Musk, Jeff Bezos, Mark Zuckerberg, and Bill Gates all became billionaires on their own. You need to understand how they become super rich. Money did not rain in their life, they worked hard to create wealth. The first rule of wealth generation is to start generating income, and the second rule is to use your money to grow financially. Even the average people can do this.

A lot of people emphasize making financial goals to become financially stable in the future but in my opinion, making a financial goal does not work unless you work hard to meet your goal. Let's say you make a goal of saving $100 every month, if you are making just $1000 and you can hardly pay your bills with your income, how can you save $100? In order to stay within your goal, you either need to make more than $1000 or you need to downsize your life so that you are able to maintain $900 and you can save $100. Sadly, a lot of people lack this skill.

How to Start Paying Your Debt

First and foremost, you should avoid getting into debt. If you already have debt and want to pay your debt, you need to do two things, one, start working more to generate more money, and two, stop making unnecessary spending so that you can save money and use your savings to pay your debt. These are the basic methods to pay off your debt. However, there are also a lot of other strategies that you can use to reduce your debt.

Connection Between Debt and Unnecessary Spending

Getting a loan to start a business, make an investment, or buy assets can be considered a good strategy because you are basically using a debt to build wealth. However, if you get a loan and if you do not use your loan to make monetary return, you might get into a bad debt. When you have a bad debt, you will be in a lot of financial troubles.

One of the primary reasons for getting into a bad debt is due to your unnecessary spending. A lot of people have this mistaken view on what should they spend on and when should they stop spending on. A lot of people have this mistaken view on spending, they tend to mistake unnecessary spending as essentials.

If you have a debt and if you are having difficulties in paying off your debt, the first thing you need to do is to avoid unnecessary spending. Cut your expenses (even if it means to downsize your life) and use the surplus money to pay off your debt.

Debt consolidation: Is it a Good Idea?

Debt consolidation is a process of refinancing your debt. This process will allow you to have one big debt instead of multiple small debts. Let’s say you have a car loan, house loan, student loan, credit card loans, etc. You the borrow a big amount and app your all debt to have one single debt. Debt consolidation is actually debt refinancing for personal finance (it is also used in the business world, or even by the governments).

Debt consolidation will be good provided the debt you are paying off has high interest rates and the new debt has comparatively lower rates. Let say your loans have interest rates of 6-10 percent, and you get a new loan with an interest rate of 7 percent, your new payable interest rate will be lower than your previous interest rate. If you want debt consolidation, you need to remember to pay off high-interest debt first, and then move on to lower interest debt. You should also pay off small debt first.

Debt consolidation is a very effective debt-reducing strategy. If you have multiple loans, you consolidate your multiple loans into one loan and start paying your loan. However, you need to make sure your interest rate is lesser than what you were paying previously. Another effective strategy is to pay off your higher-interest loan first and then focus on lower-interest debt. This method will allow you to save money on payable interest.

Conclusion: How to Pay Off Your Debt Fast

Generally speaking, there are three ways to tackle your financial problems, one, you start making more money, two, you start spending less and saving more, and three, you start paying off your debt. All these three methods mentioned here are important, you need to do all of these and never supplement one for the other. Financial problems mean you are struggling with money, you can address this issue only when you have money at your disposal. You can have money, only when you start making more money. You can make more money only when you work more. If you are occupied full-time and do not have additional hours to work, you can try building passive income sources. You will also have to drastically cut your expenses. When you cut expenses, you save more, when you save more, you will have money at your disposal and you will not have any financial problems. Here are other things to consider:

 1.      Create a budget: Have a clear understanding of your income and expenses and make a budget to ensure that you're spending less than you're earning.

2.      Monitor expenses: Keep track of all your expenses and prioritize them based on importance. Consider cutting down on unnecessary expenses to improve your cash flow.

3.      Manage debt carefully: Avoid taking on unnecessary debt, and make sure to prioritize debt repayment to maintain a positive cash flow.

4.      Stay on top of your cash position: Regularly check your business's bank accounts and cash balances to stay on top of your cash flow situation.

Avoid Personal Loans: A lot of people use a personal loan to finance unproductive things or buy liabilities. You should always avoid doing this. When you use a loan to buy liabilities, you will be making losses in two ways, one, your liabilities will make you spend money, and two, you still need to repay your loan. While getting a personal loan a lot of people simply miss one vital point which is whether the loan repayment amount is less than 10 percent of your monthly income. If you have to pay more than 10 percent of your monthly income for debt repayment, you are in financial trouble.

 

First Published on Trendri

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MicaR
MicaR

Web Designer and Content Creator


Online Venture
Online Venture

A blog on Business, Finance, and Making Money Online. The blog offers useful and interesting articles on how to start and run a business and how to make money online.

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