Measure your income
Another important element in financial planning is to determine your average annual income. This should go without saying, but unfortunately it’s given way to many who have money invested in high-income earning opportunities.
If you take home approximately $10 or less per week, then you can consider this to be your income. If you make more than that, then calculate an average over the course of a year to get an accurate number.
The beauty of having such a low income is that you will easily know where your finances are being spent. You can also start by looking at what things were paying before you went into salary to see if they could be lowered to give yourself some wiggle room.
It is helpful when starting out to classify all of your spending. Even if you’re not consciously aware of how much certain activities cost, it’s good to know. It doesn’t matter if you want to control your budget or not; knowing where your expenses are going helps.
Measure your expenses
It’s important to get a clear picture of your finances before you can move forward with any planning.
There are many ways to measure your income and expenditures.
You can use financial software to track your bills and payments. You can keep notes in a notebook about all your spending, including bills that you pay regularly (such as rent or mortgage installments). Or you can create a budget based on what you currently make after taxes and add in additional money for fun things you want to do.
Whatever method you choose, have at it now and pick one way to go.
Measure Your Expenses
If this is something that has never been done before, there are free resources available to help you. Search “financial recording methods” or visit a library for books and articles that talk about good expense management practices.
Budgeting helps people understand where their money goes, which may be helpful when managing debt or saving for retirement. If you need help understanding what constitutes necessary living costs versus unnecessary spending, research cost-of-living increases online.
It is best to start with a simple figure of around 30 years worth of spending; if you spend less than that, reduce your estimate. Then take that total number and divide it by 12 months to obtain one monthly amount.
This will give you an idea of how much you should save each month without worrying about upcoming expenses or debts. Add extra amounts to cover
Create a budget
Manage your money well, and you will have more money to spend!
A few months ago, I wrote an article entitled “7 Budgeting Tips”. But here is another way to look at it.
Let’s say you are going to eat out one night, take a movie ride with friends or family members, go to an event sponsored by your employer, or shop for gifts for others.
All these activities require spending money. But how much do they cost?
They can be free or paid programs. They also need planning – time to decide what we are going to do.
We can ask ourselves questions like: How much time do we have to get there? Who is coming? Is there anything fun we want to try? Or maybe we could plan a date night together.
How about education? If someone cares about their work-life balance, they probably already has some idea of where they see themselves in five years.
But if they don’t know this about themselves, then they might consider whether they want to raise their children in a two-working parent society or not.
Maybe they’d rather pay now so they can retire later. Or perhaps they feel that saving for retirement is important but understanding when they’ll leave their job is critical.
Retirement is not a sprint, it’s a marathon. The average person spends around 10 years running before the race
Save for a rainy day
Even in this age of credit card debt, we still think it’s smart to save money. After all, you do need something to fall back on.
However, savings goes hand-in-hand with responsibility. It is important to understand that saving means being choosy about what you spend your money on.
You can be rich without being bankrupt if you learn to manage your money. Here are some tools you could use to start managing your money:
Find a good financial advisor
If you already have some money saved up, investing in someone else’s better knowledge is not a big deal. But if you are still paying off debt or don’t have much cash reserve savings, it’s probably not a great idea to hire an investment manager.
Instead, choose one or two professional advisors who work within your budget and risk tolerance level. Plus, they can help you learn how to keep track of your finances.
Following are some questions you should ask about your prospective advisors during the hiring process:
Divide your monthly spending into smaller tasks
It’s helpful to organize our finances in order to track their status. We can then identify areas for improvement and adjust our spending accordingly.
There are many ways to do this, but one simple way is by dividing our monthly expenses into smaller tasks.
This can be done with any budgeting tool or spreadsheet program. By organizing our expenses this way, we also have more control over how we spend our money.
It may seem complicated at first, but once you get it down, you will find it very useful. The benefits include better efficiency, higher accountability, and stronger budgets.
Do not spend money you cannot afford
The first step to managing your money is to understand what is spending that you can’t afford.
These are expenses that will hurt your credit score or cause you to carry debt, such as loans and credits cards.
It also includes investments, such as stocks, bonds, and real estate investments. Finally, it includes luxuries – things you put up for rent or purchase than could be invested products from businesses who provide services like insurance.
All these items count towards your monthly budget unless you have a specific reason to allocate extra cash toward them.
Your reasons might include why you want to invest more or less money each month, how much you need to save in order to qualify for a loan, or whether you prefer high-end purchases or low-cost ones.
Don’t worry about cost when it comes to investing, saving, and spending; however, keep in mind this is typically the most important part of financial planning.
Invest in low-cost stock
One investment that often gets thrown out as a bad option is the direct purchase of stocks. Often, people believe they have to invest online or through a broker to get high returns.
However, it’s easy to buy small amounts of stock from your employer (if you have one) or by using funds at your bank. If you need help choosing between buying shares directly or investing in mutual funds, there are many online resources for advice.
By taking advantage of tax-free deposits and loans, investors can gain access to large quantities of money without paying interest. Consequentially, investors will be able to own more shares and/or hold them for longer periods of time.
Mutual funds reduce risk by acting as pools of cash that individual investors can share. As long as everyone knowing each other, they are willing to take on extra risk to obtain a better return.
Invest in real estate
Real estate is one of the biggest investments you can make. It’s also one of the most liquid ones (easy to sell). If you want to use an investment property as equity, you can write it off against your income.
If you choose to rent a home, there are some benefits to this type of investing. You enjoy a lower risk than building projects. Also, renters tend to be less disciplined with their spending.
With higher-risk projects, such as developing property yourself or buying pre-developed properties, comes a higher level of responsibility. Due to the high cost and risk associated with these types of loans, they usually require a greater degree of discipline.
For example, no one should consider developing property without first paying for a development project insurance policy. This protects the lender if someone falls injured at the construction site.
Also, by reducing risks, costs, and potential losses, security is easier to achieve. These factors together help reduce the chance of default.
That said, many people fail to realize that renting a house is actually a tax strategy. However, before we get into that, let’s talk about why and when you should invest in rental properties.
