ArticlesBest Practices for Financial Stability
To achieve financial wealth you need to take a look at your habits. Are you in the habit of spending more than you earn? Or, are you in the habit of tucking a piece of each paycheck into a savings account or investment? The habit of saving is the backbone to financial success and personal wealth. People should use the days of summer as an opportunity to get started on the road to financial freedom.
Why not take advantage of this extra time to look at your financial priorities? By taking time now to look at your saving, investing and spending habits, you can work toward increased financial stability in the future.
A penny saved is a penny earned. Nearly 50 percent of all US adults say they don't have enough money in liquid savings to cover at living expenses. And one in every five adults does not have any savings at all.
It does not have to be so bad, really. Financial security is an extremely simple thing. Self-discipline is the only absolute must have on the route to debt freedom. Here are some of the easiest methods to becoming financially secure:
Determine Your Most Important Wants - If you are like most Americans, you live on a limited income with more wants than your budget allows. This summer make a list of your wants and prioritize them based on your personal values. You may find some of your wants add more value to your life than others.
Once you've identified your goals, you must ask yourself a few questions: What's important to me? What do I need? What do I want? Your answers to these questions will help define your goals. Next, put your goals in writing and get on the road to financial independence. Buying things that you don’t need that always depreciate in value, such as a new car, recreational vehicle, or the latest and greatest living room furniture.
Track spending: Get Your Money's Worth -- Are you satisfied with the way you're spending your money? Keep a journal listing exactly what you buy each day including interest payments and investments. At the end of the month, analyze how much money you spent and where it went. If you are not completely convinced that you got your money's worth, adjust your spending habits. You'll be surprised with how much you can save when you refine your spending
One trait that is common to most people with financial problems is their inability to track their spending. Dig out your paycheck stubs, last year's federal income tax return, credit card statements and year-end summaries, details of home, car and any other loans, and financial statements from your banks and investment firms and keep detailed records.
Also try to get into the habit of maintaining an expense book and write down everything. You'll be surprised to know how much money gets wasted on unnecessary expenses like coffee, soda, magazines. So, once you know what part of your expenditure is wasteful, eliminate the expense and reallocate your money to pay off your debts.
You can organize your finances by keeping a budget. Even if you are facing severe financial problems, a budget can still help you get out of debt. A budget essentially organizes your spending. Sticking to a budget may be easier than creating a workable one. So if you find yourself budget-challenged, there are a lot of websites that help you create a budget to suit your specific needs.
The bottom line is the difference between what you earn and what you spend. And it's basic math when we say that you must earn more than what you spend. So if your expenses race ahead of your earnings, you've got a problem. You are probably financing the difference with credit and that is even more dangerous. If you are spending up to 12 percent more than you earn, you need to rework your finances. But if you are in the 15- 20 percent overspending area, you are in a danger zone. Examine each variable expense and decide how to bring your spending under control.
Pay yourself first: Ever thought of paying you some money? The first thing you must do when you get your pay is set aside a certain amount. Allocate a certain amount to repay all your loans, debts, fees, and bills, etc. Create a 'Me' account and direct a portion of your monthly paycheck to this account. The money can be used to fund your retirement, children's education or even your personal travel. And every time you get a raise, increase your contribution to the Me account.
This summer, plan for the unexpected. How do you plan to use money given to you by others? What happens if you unexpectedly lose a loved one or have medical expenses to pay? Planning ahead can provide answers to these questions. Make sure your life and health insurance policies provide enough coverage (without going overboard) to protect you and your family if the unexpected should happen. Make a commitment to invest money received outside your regular current income to improve your financial future.
Emergency fund, as the name suggests, this fund helps you in times of emergency. For instance, if you suddenly lose your job, or are involved in an accident and are unable to work, you can turn to your emergency fund for help. No matter what your income, you must have a minimum of three to six months' worth of savings for living expenses.
Repayment fund, this is something you can do even if you don't have too many debts. Regularly set aside some money for a repayment fund. It doesn't have to be too much to begin with, but as the weeks pass, you'll watch it grow into a huge amount.
Know your worth: You must continually update yourself on what your job is worth in the marketplace. For this, you must evaluate your skills, productivity, job tasks, contribution to the company, and the going rate, both inside and outside the company, for what you do. What you probably don't realize is that a difference of even a few hundred dollars can have a significant cumulative effect over the course of your working life.
Eliminate Personal Debt -- When you spend more than you make, you are spending your future income. Analyze your current payments and find ways to pay down your debt as quickly as possible. Remember, you can put a price on time. The longer you take to pay down your debts, the more money you will pay in interest. The sooner you are able to pay down your debts, the more time you will have to invest that money elsewhere. Options range from borrowing money at a low interest rate to pay off high interest credit card debt to stopping all other investments and using that money to bring your unpaid balance to zero.
Maintain equity: Your home is your biggest asset, so it doesn't make sense to play with it. You may be tempted to cash in on that equity to finance your child's education or a vacation, but think twice before you use your home equity loan or line of credit for items other than home improvements. And even if you do take a home equity loan, ensure that the terms are reasonable so you can afford the payments comfortably.
Health is wealth: Being financially secure also means getting into shape. Unless you are ultra rich and can get the best care available, you are in for a big problem. Health costs and health insurance in the country are on an upward spiral, and there is not much chance of them coming down anytime in the near future. A healthy body costs far less to maintain than an unhealthy body; keeping yourself healthy can improve your financial health too.
Invest Wisely -- Take the time to look at your investment portfolio. Wise investors have diversified and readily marketable investments managed by professionals. Remember that one of the biggest financial risks people face is the loss in value of a dollar. This summer, ensure the money you have invested has the opportunity to earn more than the erosion in the value of a dollar over the long term.
Failing to recognize or acknowledge the power of the Internet to help you create additional income.
Wealthy people make creating wealth a priority in their lives. They accept personal responsibility for their success, create goals, and use money to build businesses, support charities, and enjoy life. Squandering your hard-earned money on things or recreational activities that provide instant gratification while ignoring the long-term implications of not investing for the future.
You could argue that the wealthy were lucky enough to be born into a wealthy family, but the statistics state otherwise. Only 15% of the wealthy households in America attribute their wealth to inheritances. That means 85% of the wealthy population earned their wealth through hard work, wise investments, and successful businesses. In a sense they found something that worked and repeated it over and over—kind of like a habit, you might say.
Wealthy people habitually do those things that create wealth. You can join this elite group by developing new habits, such as starting a home-based business using the power of the Internet. Today you have access to the most powerful marketing system in the history of humankind—the Internet. Using the Internet and exploring sights such as the one listed in my bio, entrepreneurs have literally gone from rags to riches overnight.
Change your habits and change your financial future.
Time is money. When you use your time wisely this summer, you can find money to save and reap the benefits of greater financial independence.
(c) Copyright 2007. All rights reserved.
S.V Bharath Reddy , is one of the founders of The Cashflow Crunchers, a web site for Real Estate Investors to share investing tips and other information. For more articles, tips, and free online calculators to help determine if a property is a good investment or not, please visit http://www.cashflowcrunchers.com
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