The financial world may seem like a different planet to you. All the jargon and complicated-looking formulas can make your eyes glaze over whenever the term “finance” is mentioned and it may feel like only MBAs and finance geeks can understand the subject. The fact is, nothing could be further from the truth! While some aspects of finance can be complicated, what you need to know to be successful is quite simple.
There are certain financial tips that, if you follow them in a consistent manner, your entire life can change for the better. Below, we have distilled the essence of financial success into five easy-to-follow tips.
Tip 1: Pay Yourself First
This may sound strange to non-financial types, but what is meant by “pay yourself first” is that you should save a percentage of every paycheck. In other words, bank a portion of each paycheck before you pay any bills or other obligations.
Taking the percentage off the top may seem confusing at first, but, over time, it will become second-nature to you. The amount that is generally considered to be best practice is 20% of your pay. When you think about it, you likely throw away 20% of your income anyway on less meaningful purchases.
Set up an automatic deposit of 20% from your checking account to your savings or brokerage account on the same day as your paycheck arrives. Soon enough, you will not even miss the money and you will be building capital for the future.
Tip 2: Take Advantage of the “World’s Best Investment”
This may sound crazy at first as who would know what the world’s best investment is? Well, in this case, we are talking about your employer’s matching investment program.
While not everyone can take advantage of this guaranteed substantial return, many of you can. Most larger companies provide this type of plan for their employees. How it works is your employer matches either all or a percentage of the money that you place into the program. This means that you receive an instant and guaranteed return on your money. There is truly no other investment that pays this type of instant return without any risk.
Tip 3: Launch a Small Business
Many of you have probably considered starting a small business. However, for one reason or another, you have hesitated. Well, it is time to get off the fence and into the world of small business!
First, think about what you like doing. Consider your hobbies and pastimes that could be quickly turned into a small business. The business can be as simple as selling things on eBay or providing consulting services in your area of expertise.
You see, the entire tax system in the United States is geared toward helping small businesses succeed. By launching your own small business, many of your expenses and costs become tax deductible against your employee income. Having a small business also provides the chance of it taking off and creating a substantial income for you and your family for long into the future.
Another thing to keep in mind is that a variety of online loans are available to help you grow your business. These types of loans are not available to individuals, but owning a successful business will enable you to access this entirely new financing source.
Tip 4: Eliminate High-Interest Debt
Nothing can hinder your financial growth faster than high-interest rate debt, which can come in the form of credit cards and other high-rate personal loans. The power of compound interest works against you when you carry a balance on high-rate interest loans. The minimum payments that are typically required, only impact the interest charged during each pay period. In fact, sometimes, the minimum amount does not even cover the interest expense, which results in interest being charged on interest.
If you carry a credit card or personal loan balance, make it a priority to pay it off!
Tip 5: Quantify Your Spending
We live in a quantified world. Fortunately, when things are quantified they are much easier to manage. This fact is especially relevant when it comes to your finances. Knowing what and when you spend money is the first step to setting a solid budget. Following a budget may allow you to set aside even more money for savings and investment as it is impossible to make intelligent personal finance decisions unless you quantify your income and spending. There are a variety of online services and software packages available to can help you quantify your finances.
Removing the stress of financial worry can be a very simple process. Following the five financial management tips mentioned above can be a great starting point to help you get on the path of becoming a successful and well-versed financial guru.