Friday, November 12, 2010

Top 20 Personal Finance Tips

financialtipsIf you are like me, you have never had any formal training on managing personal finances. You may have read books and researched the topic on the internet, however you probably don’t have any formal training on the subject.
It amazes ma that personal finances is not included in our school curriculum. It is such an important part of our lives however, our education system does not address.
It is time that we all take control of our personal finances, learn about the topic and take control of our personal finances. Following are 20 tips to give you a head start on the topic.

1 – Pay yourself first. Try to save a fixed percentage of your income every time you get paid. Don’t leave the cash in your day-to-day savings account because you will probably end up spending it. Transfer the money to a different account in order to increase the chances of actually saving it.

2 – Spend less than you earn. This is basic in personal finances. You need to take control of your cash flow and ensure that you spend less than what you earn. Make sure you don’t use your credit card to improve your cash flow, this is a common mistake.

3 – Have an emergency fund. If you are living within your means but you don’t have much left at the end of the pay week then it is important for you to have an emergency fund. That is to cover for emergencies so you don’t have to use your credit card if something happens. If you are trying to pay off debt save about $1000 and put all your efforts to pay off the debt. If you don’t have any debt then try to save somewhere between 3 to 6 months of living expenses.

4 – Se goals. If you have some financial goals that you want to achieve then make sure that you write them down, set a clear date and work towards achieving those goals. You have much more chance of achieving them if they are written down and if you constantly revise your progress against your target timeframe.

5 – Have a budget. In order to take control of your cash flow and ensure that you spend less that what you earn, make a budget and stick to it.

6 – Avoid going into debt. Debt is unfortunately a necessary part of our lives. Avoid getting debt to pay for lifestyle  purchases, only go into debt to purchase assets or to finances education that can take you forward in your career or in your road to financial independence.

7 – Pay off your credit card debt. Credit card debt is the most evil kind of debt. If you have any credit card debt put all your efforts towards paying it off.

8 – Don’t use your credit cards for cash advances. Some people use their credit cards for cash advances in order to bump up their cash flow. This usually attracts a much higher interest rate.

9 – Don’t buy a new car. I love cars myself but avoid buying brand new cards, you literally loose money as you drive out of the dealership. It is much cheaper to buy a 2 or 3 years old car, often with factory warranty, than to buy a brand new one. Let someone else make the mistake, not you.

10 – Don’t buy gadgets. It is amazing how many useless gadgets are available today. From phones with a compass to iPads. With a great risk to my blog I will heavily criticise the iPad. I don’t understand its purpose. To me it is a very expensive piece of technology and when I compare it to a similarly priced laptop you can do less with an iPad than you what you can do with a laptop. What is the point of it? If someone has a good reason to buy an iPad as opposed to a similarly prices laptop please leave a comment here. Gadgets will take a lot of money from you and you will probably stop using them after a couple of months anyways so don’t waste your money.

11 – Eat at home. Going out for dinner is very expensive. Don’t do it too often.

12 – Change your cell phone plan. Shop around for a cheaper cell phone plan. A couple of years ago I change our cell phone plans and we are saving about $20 a month now. Love that!

13 – Review your insurance policies. Review your insurance policies to ensure that you an not over insured. Trim down to the absolutely necessary whilst ensuring that you have covered all basis.

14 – Don’t try to pick stocks. Picking stocks is very hard for a beginner investor. Only do it if you really know what you are doing.

15 – Invest for the long term. There is no such a thing as a get rich scheme. When you invest go for the long haul. Be careful and patient. It pays off in the long term.

16 – Pay off high interest debts before start saving. Again, pay off debt that is taking money from your pocket as you sleep. you literally loose money, as interest charges, as you sleep. Put all your efforts to pay those debts off as soon as possible. Make sure you have about $1000 as an emergency fund in case something happens.

17 – Set up an automatic savings plan. Use the functionality available through your bank and setup an automatic savings plan. Transfer the money from your bank account as soon as you earn it and forget about it.

18 – Get a second job.  The quickest way to bump up your income is to get a second job.

19 – Learn about and setup sources of passive income. Passive income sources are sources of income that keep on giving you money without you having to work for them. These include positive rental properties, bonds, shares and many more. This is the key to getting rich, passive income. Research, invest your time and set up various sources of passive income.

20 – Relax and have fun. I say this for my own experience. If you have debts and you are working hard towards reducing them and trying to keep a positive cash flow you are probably under a bit of stress. This is not good for you as you are your most important financial asset. Try to relax and spend time with your family and friends. money isn’t everything, your health, happiness and the happiness of those around you are important as well. money will not buy the love of those around you. If you have a family spend time with them. Create memories that you will never forget. This could actually help you to relax and achieve your goals more effectively and efficiently.

All the best!
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