Mastering your money
One of your goals should be to take control of your money, instead of letting it control you. Here are simple yet effective actions you can take to build a better financial future. Remember that thoughts, hopes and feelings will not bring change. Only action brings change.
STEP 1: Track every penny you spend.
The best way to be aware of how money actually comes and goes in your life (as opposed to how you think it comes and goes) is to keep track of every penny that comes in, and every penny that goes out.
You can use a notebook, your mobile device, money management software, the method doesn't matter, the most important thing is to keep track of your spending habits with a method you will stick to using. Make it a habit. Donít make up the numbers. Record each and every transactions immediately. Most of all, donít judge yourself. Tracking your spending is an exercise in data collection; itís not aimed at changing your habits, yet.
STEP 2: Create a budget
After you have tracked your spending for a few weeks (or months), use the data you collected to develop a budget. According to The Millionaire Next Door, budgeting is one thing that sets the wealthy apart from the rest of us.
Many people fail to budget for a variety of reasons: itís boring, we donít think we need it, or we donít know how. But this simple act can provide a roadmap for your money.
There are a variety of budgeting methods you can choose. We recommend the balanced money formula: 50 percent to needs, 20 percent to savings, and everything else to wants. Simplistic, but effective. Of course, in this senario, you also need a definition of "needs". Needs are things like air, water, food, and shelter. Almost everything else is "want".
Another effective tip is to spend less than you earn! This is the fundamental money skill. Itís common sense, yet many people never learn to do it. Only by spending less than you earn can you hope to build wealth. This is easier to do if you track your spending and develop a budget, but even if you do nothing else, spending less than you earn can put you ahead of your peers.
STEP 3: Optimize your accounts
If your bank is charging a service charge every month, as well as many other fees, and you earn no interest, consider switching banks. Online savings account offer higher interest rates than "brick and mortar" banks, often with no fees. Tangerine is an example, and they often have promotions to earn money if you open an account using an Orange Key (ie. 33628055S1).
Avoid cards that carry an annual fee. Use a rewards credit card. If you have trouble with credit, it is best to avoid them altogether. But if you can use credit responsibly, be sure to choose a credit card that pays you! Find a rewards program that matches your lifestyle. But donít choose a card just because it offers a sign-up bonus or because it gives you a discount at your favorite store. Your goal is to find a useful tool for the long-term.
Call around for a better deal on your home and/or car insurance. Shop around for better mobile phone contracts. Cancel television channels you never watch, or any monthly subscriptions you do not use.
STEP 4: Create an emergency fund
After you have optimized your accounts, make it a priority to save for emergencies. Living paycheck to paycheck can be stressful as it is, but it gets even more so the day something goes wrong.
Open an online high-yield savings account and add $20, $50, or as much as you can afford, to your account every time you get paid. A Tangerine account allows you to schedule automatic deposits, which makes this simple. Money you do not see, is the easiest to save.
STEP 5: Get out of debt
Make it a priority to unload your debt burden as quickly as possible. It will feel fantastic to have that weight off your shoulders!
Always pay down any high-interest debt first (such as credit cards). Ideally, you never use credit cards to carry debt, as the interests rates are suffocatingly high! By the rule of 72, credit card debt doubles every 3 years! If you can, add to your mortgate instead, or get a line of credit, which are usually at a much lower rate than credit cards.
The perfect is the enemy of the good. When you spend so much time looking for the best choice that you never actually do anything, you are sabotaging yourself. An ideal solution that you donít follow through with is worse than a good solution that you will actually use. Choose a good option and act.
STEP 6: Fund your retirement
If you are young, you probably donít think you need to start a retirement account. Youíre wrong. No matter how old, or young, you are, now is the best time to begin saving for retirement. The extraordinary power of compound interest favors the young!
STEP 7: Automate your finances
Automating things removes the human element, making it more difficult to make mistakes.
The classic example is overdraft protection. By tying your checking account to your savings account, you have a safety net if you bounce a cheque. You can also set up automatic payments with the gas company, the cable company, and auto insurance company, as well as automatic deposits to your online savings account.
Having your bills paid automatically makes it easier to tell how much you have left over to spend at the end of each month.
STEP 8: Earn extra money
Tracking and reducing your spending, are great ways to meet your financial goals, but nothing supercharges your progress like a boost in income.
To start, consider selling items you do not use. There are websites such as eBay, craigslist, and kijiji which enable you to do just that. You can also host a garage sale to sell the things you no longer need or want. The money you earn could jump-start your debt reduction.
Then, consider starting a business, either through a hobby, or skill you might have. My recommendation is to take a few minutes daily, with a journal, to document ideas you have, your life goals, your passion, and finding a business that ties into these things.
Keep in mind finding an idea that will generate a stream of residual income. Residual income is when you continue to get paid after the work is done. This includes royalties from books, movies, or songs as well as income that comes from real estate or business investments where you don't actually have to be present to earn it. Building residual income may require extra time up front, but in the long run, should continue to pay you, with little or no time involvement, which gets you closer to achieving financial independence.
STEP 9: Educate yourself
Knowledge is power. Read books and take online courses that will move you towards your goals. Visit your public library which has a wealth of resources, usually for free. Borrow money books and self-development manuals. Get CDs for your car, to utilise every minute you drive in learning something new.
The good news is that you can get out of debt, and start building a financially independent future.
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