We have gathered some useful tips that each and everyone of us can benefit from when taking care of our personal finances, now matter how big or small.
1. Set a monthly budget and follow it
We all have at least some monthly fixed payments that don’t vary much from month to month. These are for example rent, mortgage payments, gym membership, Netflix subscriptions and so on. Since the amounts of those payments are same each month, the calculation is pretty simple. Add all of those expenses together with the amount that you spend on food, gas, home supplies and other necessities and deduct those from your salary.
Many times we think that we afford to buy this and do that but at the same time we are lying to ourselves. And that is not because we intend to do it – it’s because we never actually never bothered to count. Most of us only do the “math” in our own minds and those calculations are often quite inaccurate. We might go shopping the day our salary arrives because we thought we could afford it and realize later on that this was not the case at all. We still need to pay our monthly payments and spending while “blind” is not the smartest move.
You may use pen and paper, a spreadsheet or a finance app for your mobile, it does not really matter. The most important thing is to keep track and be aware of your monthly spendings and plan ahead for the future to come. Only seeing the numbers will already help you plenty, it’s just how our minds work. If you don’t believe it, give it a try and you will see for yourself.
2. Make savings part of your monthly budget
There is a reason if you wonder why you are sitting at home on a Friday night and eating microwave-heated food. And the reason is staring right back at you from the mirror. In most of the cases we spend over our limits and invest in things that do not profit us. How much we earn every month is relevant of course. But more important is how we spend the money we worked so hard for. If you spend your earnings wisely, your salary doesn’t have to be huge and you will still be able to save money for the future.
Most financial advisers suggest that you save or invest small percentage of your monthly earnings in a way or another. It doesn’t have to be more than 10-20% of your income to make a big effect on your finance in the longer run. Holding the money on a savings account with a low interest usually is the worst and the least profitable option. On the contrary, investing in the stock market might sound risky, scary or too hard to understand for most people.
Thankfully there is easy options to make your capital grow, since banks offer investment schemes which basically means that someone else is taking care of your investments while you can concentrate on living. The average global annual return in the stock markets has been 7% meaning that only a small investment amount each month will have a big effect in the long run. Investing in real-estate is also recommendable in many cases, but also needs more capital and is not a real option for an “Average Joe” to be honest.
3. Make smart and sustainable decisions when making purchases
Many of us tend to buy cheap stuff only because they are cheaper than some other option. An old saying says that a poor man can not afford to buy cheap products. We think that this is just the case. When deciding if the latest tech toy, kitchen gadget, or piece of clothing is worth it, factor in how many times you will use it or wear it. Teach yourself to evaluate your purchases by “cost per use.”
Cheap stuff is cheap for a reason and in most of the cases you will just waste your money when you are saving in the “wrong” place. It may seem more financially responsible to buy a 20€ shirt than a 50€ version – but only if you ignore the quality factor. Better quality means a bigger price tag but many time also a longer lifespan.
Rather than spending on things – spend on experiences. Putting your money towards purchases like a concert or a picnic in the park with your friends or family instead of spending it on pricey material objects gives you more happiness. And as we all know, money cannot buy happiness directly, but it still makes pursuing it slightly easier.