Managing your personal finances makes life so much easier, and yet very few of us are taught how to do it. Additionally, money is a near constant source of stress for so many people, and thinking about it every day often means we worry more and enjoy life less.
But, while it may seem counterintuitive at first, focusing on money with a few simple personal finance strategies will help you get a handle on your cash and reduce your stress in the long run. Below are some personal finance tips to make your life easier, covering budgeting wisely, making informed investment decisions, saving often and spending appropriately.
Saving
Though all facets of personal finance are important, saving is foundational. If you come up against an emergency, your savings will help solve the problem. If you want to make a large life purchase, your savings mean you won’t need to borrow as much. Here are our tips for how to save smartly and often.
Automate Your Savings - Obviously, keeping your savings in the same bank account as your earnings is incredibly tempting. So, if you know you’ll get the urge to spend, set up a separate account and automate a transfer of a certain amount into it after each payday. Then, you can forget about it until you need to use your savings, and chances are you’ll be surprised at just how much you’ve managed to put aside.
Your Emergency Fund - An emergency fund is a financial lifejacket for unexpected expenses, like medical bills, car repairs, or loss of employment. As well as ensuring you don’t get into credit card debt during tough times, it helps bring you peace of mind. Most experts suggest saving three months of income as a minimum, but there’s no reason you can’t save more than this. If you’d like to know exactly how much should be in your emergency fund, use this emergency fund calculator.
Manage Windfalls - Receiving large and unexpected sums of money is cause for relief, happiness, and even celebration. But you must resist the urge to splurge with your newfound cash. Though it may seem a little boring, allocating these funds towards savings or paying off debt means that you can have much more fun with the next windfall.
The No-Spend Challenge - If you want to start saving or find yourself with a disappointing amount after months of putting money aside, a no-spend challenge is a great way to up your numbers while learning more about your attitude to money. As you may have guessed, you simply need to resist the urge to spend on frivolous purchases for a set amount of time. Then, put everything you didn’t spend into your savings account.
Budgeting
Budgeting is the first thing most people think of when effective personal finance is brought up. It’s a daily, weekly, or monthly activity that helps you stay on top of your spending and work out where you can save more. Budgeting is meant to reduce stress by giving you constant control, but it doesn’t work for everyone. That’s why we’ve included a range of budgeting strategies below, some that are more ‘hands off’ than others.
The 50/30/20 Rule - Popularized by US Senator Elizabeth Warren, this simple budgeting technique involves dividing your income into three categories: 50% for needs (essentials like housing and groceries), 30% for wants (entertainment and hobbies), and 20% for savings and debt repayment. It’s a balanced approach that helps prioritize both necessities and long-term goals.
The Kakeibo Method - Hailing from Japan, this budgeting method emphasizes mindful spending by keeping a physical journal. In it, you can track income and expenses, while also pondering some bigger questions about money. At the end of the month you can reflect on your purchases and ask ‘Did I really need that?’ Then next month, you can put what you’ve learned into practice. Here are some Kakeibo printables to get you started.
Reverse Budgeting - If building up savings is your goal, reverse budgeting is for you. Also known as ‘pay yourself first,’ this technique involves setting aside amounts for savings or investments. Any remaining money is then used for bills and entertainment. While this method ensures saving becomes a top priority, it takes a lot of work to ensure you still have enough for necessary expenses after allocating your savings.
Zero-Based Budgeting - While leftover money often ‘rolls over’ into next month’s budget, zero-based budgeting works by ensuring every single dollar of your income is spent or saved by the month’s end. This method requires detailed tracking and planning but offers complete control and means no money is wasted.
Investing
Investing means putting your money to work to generate even more money. Whether you’re saving for retirement, building passive income, or pursuing financial independence, investing strategically is key to reaching your goals. Here are our tips for an investment strategy that will change your life.
Start Right Now - This can be said of all the personal finance tips listed here, but many of us leave investing until we feel like we have ‘enough’, only to find that time never comes. Waiting only delays the benefits that investing can offer, so even if you only have a few dollars, starting now means you can watch that amount grow.
Do Your Research - Of course, you’ll only make money if you make a good investment. So, before you pledge your hard-earned cash to a business proposition or broker, it’s crucial to do your research. For basic information, check out investor.gov and Investopedia. Understanding market dynamics, the companies you’re investing in, and your own financial goals will help you make informed decisions and avoid costly mistakes.
Consider Tax-Advantaged Accounts - Tax-advantaged accounts, such as 401(k)s, IRAs, and HSAs, provide a great boost to your investment income by allowing your investments to grow tax-free or tax-deferred. Of course, these benefits have rules and limits, so chat to an independent financial advisor if you can. They’ll let you know how you can maximize your investments and save more without running into trouble.
Invest in Yourself - You are undoubtedly one of the most valuable investments you’ll ever make. Using your income to enhance your skills, education, and personal development will improve your earning potential, career prospects, and overall quality of life. Whether it's pursuing further education, attending workshops, learning new skills, or focusing on your physical and mental well-being, these investments provide long-term benefits that can lead to a surprising amount of personal and financial growth.
Spending
Managing your spending is equally as important as budgeting, saving, and investing. Being mindful of where your money goes means you won’t live beyond your means and start accumulating debt. Also, by practicing smart spending habits, you can enjoy life while still making progress towards your long-term financial goals. Here are some strategies to help you spend wisely and avoid common pitfalls.
Purchase Memories - Instead of spending your hard-earned money on material possessions, focus on experiences that create lasting memories. Travel, concerts, and family activities often provide greater fulfillment and value than expensive items, while also enriching your life in ways beyond financial worth.
Quality Over Quantity - Purchasing fewer, better-quality items that will last longer and serve you well means you’ll spend much less in the long run. Though you may have to make a bigger investment up front, these products will often be more durable and versatile than multiple low-cost alternatives, saving you money while also reducing waste.
Avoid Credit - If you don’t have a credit card or any loans, it can be tempting to take the various, attractive offers banks and lenders send to you. But relying on credit is a one-way-ticket to living beyond your means and accumulating debt. You can never go wrong by using only ‘real money’ to make purchases. However, if you already have credit card debt or repayments to make, these should be your top priority. Once you’re back in the green, cut up those debit cards once and for all.
Negotiate Bills - Haggling is a skill unto itself, and it’s not just useful at the farmers market. Insurance premiums, cable fees, and phone plans are all open to negotiation, so give your providers a call and inquire about better rates. This can result in huge savings without sacrificing the necessary services that you rely on in daily life. If a better rate isn’t available with your current provider, sites like compare.com and Forbes Advisor can help you find a more favorable plan with other providers.
The 24-Hour and 30-Day Rules - These time-frames correspond to how long you should wait before making certain purchases. If you feel the impulse to spend on something small, wait 24 hours to find out if you still want the item or service. On the other hand, the 30-day rule is ideal for larger purchases. By waiting 30 days, you give yourself ample time to reflect on whether the item is truly necessary or if the money could be better spent elsewhere.
In Conclusion…
Mastering personal finance is a long journey, often with many twists and turns. But, by implementing strategies to control your spending, perfect your budgeting, and manage your savings, you can take control of your finances and future.
The smallest of actions can lead to huge results, so whether you're building an emergency fund, planning for retirement, or simply working toward financial independence, the key is to stay committed. With the right money mindset and habits, you really can change your life.
Sources and Resources
- https://eringobler.com/personal-finance-tips/
- https://www.forbes.com/uk/advisor/savings/clever-ways-to-save-money/
- https://money.usnews.com/money/personal-finance/saving-and-budgeting/articles/how-to-do-a-no-spend-challenge
- https://srfs.upenn.edu/financial-wellness/browse-topics/budgeting/popular-budgeting-strategies
- https://societyone.com.au/blog/japanese-kakeibo-budget
- https://www.investopedia.com/articles/00/082100.asp
- https://www.sunshineccu.com/smart-spending-is-the-secret-to-financial-wellness
- https://www.experian.com/blogs/ask-experian/tips-for-spending-money-wisely/
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