We live in an economic planet where almost every decision we make is tied to money. Just take a look around you and you’ll see the handwork of money. Right from the device you’re reading this post from, to the clothes you’re wearing, to the food you munch on not to talk about the ride you cruise with – you can see money every where – can’t you?. That being the case, it behooves us to be wise in how we manage our money to maintain our financial six-packs – come summer or winter or spring.
I’ve gleaned fundamental interesting points from some books on finances (e.g. Think And Grow Rich, Financial Fitness, etc.; be sure to check out Top books on money and finance books ) that I’ve perused through and I will be sharing them here:
1. Have a budget and track your expenses
A budget is an extremely valuable tool that will guard you against getting broke. It usually helps to create a monthly budget and discipline yourself to stay within its bounds. Creating a budget requires that taking into account the income sources such as payment from a job, business(es), investments and then estimating how much you plan to spend each month on your needs and wants such as rent, bills, outing, among others.
In addition, tracking expenses helps to keep a tab on where money goes to, by recording every expense incurred from as little as buying a cup of Tim Horton’s coffee to picking up a TV set from an electronics store. There are a number of tools where this can be done. For the non-techy, using an Excel spreadsheet can be a good start. And if you are techy enough, you can get one of the free expenses recording apps (for example, Mint, Wallaby, Wally, and so forth).
And the catch here is that by the end of each month, determine whether or not you did a good job at spending less than you earned. If you did – you deserve a pat on the back. Otherwise, it is time to review the expense records to see which expenses can be eliminated in the coming months.
2. Distinguish your needs from your wants
I know that everyone would love to get whatever he/she wants whenever they want to, but that may not always be possible especially when a person is still trying to get back on his/her feet. In times like that it is essential to be able to differentiate between needs and wants then to apply discipline to delay on some of those wants in order to secure the needs. And, of course some times drawing the line between need and want can be blurry.
To ascertain whether an item is a “need” or “want”, try living without it for a few weeks and see if you can cope. If you can’t then perhaps it’s a “need”; otherwise, it could be classified as a “want.”
Having knowledge of wants can definitely help with identifying what items can be done away with in order to cut down on expenses.
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3. Develop the habit of saving more
Statistics from the insurance industry once revealed that of 100 individuals who start working by age 21, 1 of them would be rich, 4 will be financially independent, 15 will have sufficient money, and the remaining 80 will be working, broke, or pension-dependent due to insufficient funds .
Everyone’s goal , I believe, is to be rich or, at worse, to be financially independent. No doubt, achieving this goal begins now with having to form the habit of saving more and spending less. In fact, according to W. Clement Stone, this one habit is a sign a greatness in an individual. To assist with this, it helps to have a dedicated savings account(s) opened into which money can be deposited at a fixed or variable interval depending on income. The rule of thumb is that you pay yourself first by putting aside at least 10% of your pay toward saving. And if 10% seems too much, one can start with as little as 1% then gradually increase the percentage either monthly or quarterly as one get comfortable.
The temptation may be to hold off completely until one is already earning a huge amount of money. But truly the best time to begin developing this habit is when there’s little money coming in so that when the money begins to pour (which I believe will happen), it won’t be a hassle setting aside the appropriate amount toward paying yourself first.
And, of course, there’re different purpose for savings and hence there would be different accounts for that including: (1) the short-term to long-term savings to fund an investment or a major expense, for example; (2) the financial freedom account which would be in an RRSP to fund retirement; (3) the peace of mind account (aka emergency funds) which usually comprises between 3-6months of expenses; be sure to check out this article for more on this .
And, of course there could be others apart from those, but these are the main one. The bottom line here is that by cultivating the habit of saving more, it becomes possible to quickly fund different savings account and get some investments going.
4. Use credit cards with caution
When used wisely, a credit card can be a great way to obtain a reputable credit history which will prove very useful when one chooses to secure a loan for a mortgage, rent an apartment, or lease a car, etc. But then you’ll agree with me that using credit card required extreme caution and it mustn’t be abused. If a person can’t discipline himself/herself in spending on credit, then I don’t think such person is ready to own one yet.
Something worth watching out for as well is in maxing out the limit on the credit card especially when the issuer of the card begins to offer more credit. Obviously, that can be great news for someone who’s disciplined and could even channel that into an investment. But for someone who’s a spender accepting such offer can lead to entering a deep financial hole eventually.
How about you? What are some tips/habits you follow to maintain a sound “financial six-packs”?
To your financial fitness!!