Four Financial Survival Tips You Should Know About
Most of us know how to handle our finances properly. Others even live through the paycheck-to-paycheck lifestyle. Not having financial literacy may lead to debts or diminished quality of life. Unfortunately, if you continue living on mismanaged finances, your lack of financial knowledge will eventually create a deep pit that will be hard for you to get out of.
What should you do with your money? Here are four financial survival tips that you can apply to attain financial stability.
Establish a Monthly Budget – and Stick to it!
In a nutshell, budgeting is allocating your available funds into different necessities. Establishing a monthly budget will help you monitor and control your cash flow (expenses and income) effectively.
In creating a budget, you must consider the following: fixed costs, financial goals, and flexible spending. Fixed costs are expenses that fixedly occur every month or year. These are your payments for bills, utilities, rent, and insurances. It is advisable to allocate half of your income to these costs.
Financial goals are your savings, investments, and debt payments. About 20% of your income should go into savings. This budget category aims at improving your financial health, so don’t overlook this!
Lastly, any unexpected or varying expense falls under flexible spending. These include food, groceries, clothing, hobbies, entertainment, and miscellaneous expenses. While these are still, you should not more than 30% of your total income. It is advisable to spend less than the allotted amount for flexible spending to include them in your savings and financial goals.
While budgeting is a promising way to handle finances, most people still cut short. It is either due to overspending or simply because their income is not enough to cover their expenses. The idea of gaining financial stability is to either lessen your expenses or increase your sources of income, better if you can do both. Otherwise, you are risking yourself to gaining debts.
Your overall financial standing will depend on your budget. So if you fail this first step, you are eventually setting yourself to fail.
Pay Off Debts
It is wise to clear off your debts as soon as you can, especially for debts accumulating high-interest rates such as credit card debt. Use the allotted amount in your financial goals to repay our debts.
It is possible to be unable to pay off all your debts completely. If this happens, know which ones are to be prioritized – checking the interest rates may help. You would not want to incur high penalty fees for your late payments.
Paying off your debts takes sacrifice and determination. Remember that the faster you’ll live debt-free, the faster you can start growing your wealth.
Create an Emergency Fund
Before creating an emergency fund, make sure to pay off all of your debts first. Otherwise, you will end up using your emergency fund for an ‘emergency’ payment of debts.
An emergency fund, as the name states, is your back-up fund in case an emergency happens that incurs higher expenses than that you have anticipated. For example, if you get suddenly lose your job or get hospitalized, you can rely on your emergency funds to help you pay for your expenses rather than borrowing money, loaning, or using your credit card.
Financial experts claim that an emergency fund should be enough to cover all your expenses for three to six months. This helps pay off essential expenses in case you lose your current source of income. Since you already paid off your debts, having an emergency fund will help avoid accumulating debts again.
Learn to Invest
You clear your debts, you have an emergency fund, and you even have a hefty amount of savings – are these enough to make you financially sufficient? Not yet! What if you lose your current source of income? What do you do?
Face it. No one gets rich just by being a devoted employee. You need to branch out your sources of income. This is where investments come in. Having investments is a way to make your money earn more money for you.
Most employee benefits include retirement saving such as an IRA, 401(k), or employee pension. Otherwise, you can opt for other types of investments. Investing in stocks, variable universal life (VUL) insurance, realty and properties, and small businesses are great starters for growing your investments.