Go online or open a book on finance, and you’ll find a million tips and personal finances tricks that are “guaranteed” to make you rich.
The sheer amount of information about personal finances can make it seem overwhelming, and it leads a lot of us to just give up entirely.
While that’s understandable, it’s not the best approach to life. With that in mind, I’ve collated thirteen tips and tricks for personal finances that are easy to understand, and will start improving your financial situation as soon as you start implementing them.
1. Know your net worth
It’s important to know your net worth for personal finances. Knowing what you’re worth helps you make better financial decisions, and helps you identify areas where you’re spending more than what you can afford to.
This, in turn, helps you create a budget that fits your financial situation properly, which in turn helps you save more and alleviate debt.
To calculate your net worth, you need to first calculate the value of all your assets, including property, investments, and income; and then subtract the sum total of all your liabilities.
In other words, your net worth is the sum of your property minus the sum of your debts.
2. Set up a financial plan with clear, measurable goals
The first thing you need to do is figure out what is important to you. You need to prioritize certain things, so you know where you need to put your money and what can take a back seat.
The next thing you need to do is divide your goals into long-term and short-term goals. Long-term goals can be things like paying off student debt in five years or funding your retirement plan; and short-term goals can be smaller things like saving a certain amount of money or making a purchase in three months.
Remember that your goals have to be specific and time-bound.
3. Create a long-term and a short-term budget
This is quite similar to the previous tip, in that it helps you plan where your money goes. Before you make your budget, you should take stock of your income and your expenses, and possibly write them down.
Then you allocate a certain amount of money to each category, and try to stick to it throughout the specified period, usually a month.
A popular method of allocating funds is the 50/20/30 rule, in which you put 50% of your income towards necessities like food, shelter and bills; 20% towards your savings, and 30% for whatever else you want to get.
It’s not a law you have to follow, but it is efficient and you’ll most likely have some money left over at the end of the month if you stick to it.
4. Look for additional streams of income
A little extra money goes a long way. Having one or more extra income sources can make a world of difference to your financial health.
Renting out property is a great way to earn passive income; and it can help you get rich or get out of debt, given enough time.
Side hustles are also a great way to get extra cash. The best thing about having a side hustle is that you can set your hours and your prices, so you basically decide how much you earn.
If you aren’t sure what side hustle to go with, here are a few ideas to get the job rolling.
- Driving for rideshare or delivery services
- Babysitting or pet sitting
- Selling your skills on freelancing sites like Fiverr
- Teaching online courses
The extra cash you get from these sources improves your ability to achieve financial independence; and the more time and resources you put into them, the more they grow.
5.Monitor and improve your credit score
Keeping an eye on your credit score is important. This is because credit determines whether or not you’ll be able to make certain purchases, get higher loans and mortgages (with better rates), and a multitude of other things.
There are websites, such as Borrowell, which monitor your credit profile and help you keep an eye on your credit score. They can also help protect you against fraud, identity theft, and any mistakes that might damage your credit.
Your credit score is as important as your net worth; building it up to a decent number will go a long way in earning your financial freedom.
Monthly payments for utilities and loans help build your credit.
6.Pay off high-interest debt
If you currently owe credit card debt, you should be seriously planning not to. Credit card debt can build up quite fast, with rates as high as 19% or even higher.
There are other high interest debts, though, so it’s best to list all the debt you currently owe, and make a plan to repay each one as quickly as possible.
You can also ask for lower rates on some, such as student loans; or combine multiple loans into one.
Another option is transferring debt from a high-interest credit card to a low-interest credit card. That will give you some breathing space and allow you to pay it off faster.
7.Learn to differentiate between good and bad debt
Right now, you’re probably wondering if there’s such a thing as good debt. Well, the answer is yes.
Good debt is debt acquired through purchasing something that will yield greater returns in future.
Contrarily, bad debt is acquired by purchasing something that will lose value in future.
Of course it’s a bit more complicated, but that’s the basic premise of it.
Student loans are, by definition, good debt, but finding a job that pays enough to cover what it cost isn’t guaranteed.
Auto loans are bad debts, but owning a car has its benefits.
8.Automate your savings
When your salary comes in at the end of the week or the month, you should set up a savings account that automatically deducts the amount you want to save.
This way, you’re making sure that you’re saving exactly as much as you want to, and you’re much less likely to eat into your savings.
9.Set up an emergency fund
An emergency fund should be enough to cover your expenses for five to six months. To get this value, you should look at your current budget and pick out only the necessities (food, utilities, etc).
You should start saving towards an emergency fund as early as possible, because there’s no way of knowing when you’ll need it.
Having an emergency fund also helps safeguard your savings, and can keep you out of bad debt.
10. Start investing
Saving is all well and good, but money in a savings account will lose value over time due to inflation.
In order to grow your money rather than let it lose its worth, you should become an investor.
The forex market, the stock market, and cryptocurrencies are some things you can invest in.
You can invest on your own, or hire a financial advisor to help you out.
11. Reduce expenses
Tracking your expenses and reviewing them against your budget goes a long way in cutting out unnecessary spending.
Waiting a certain amount of time (say 24 hours) and really thinking every purchase through can also help curb impulse spending.
You should also evaluate whether your purchases are necessary, or whether you’re making them to impress other people.
If you’ve done all this and the purchase still seems necessary, then go through with it. If it doesn’t, do the opposite.
12. Increase retirement savings
You should ideally start saving towards your retirement from your first job, in order to make the most of your retirement savings plan.
The longer you leave your money in your retirement savings account, the more the compound interest will accumulate; so you should start as early as possible.
Learn more about saving for retirement.
13. Improve your skills in order to advance your career
Getting higher educational qualifications, training in your place of work, or acquiring external certifications are all ways of improving your skills.
Improving your skills will help you better understand your job, therefore making you better qualified.
This increases your job stability, and it may also lead to you getting a salary increase or a better position.
Following any of these tips will have a positive impact on your financial situation. You should start as many as possible as soon as possible—today, even. You’d be surprised at the impact it will have.