Every New Year, one makes the resolution to be fit the coming year. Make a fitness plan, following it in the initial days with determination is what is witnessed amongst all. But this enthusiasm fades after a month.
The same trend is followed in personal finance. Promises made to stay more organized in every tax season. Shed the debt; build extra income just in case something goes wrong and increasing financial flexibility to stay stable during the uncertain economy. But we break our promises in terror to find out how we are doing.
Just like your fitness instructor will run you through a set of drills at the gym, here are a few exercises that you can do to find out how financially fit you really are:
- Get a Budget:
Cash flow is the single most valuable resource you will likely have. It is your monetary food, your financial lifeblood. For most people, if there is any disruption in their income, they are quickly in serious trouble. Having a proper budget is key to understanding how much you are bringing in, how much is going out and how much stays in your pocket.
No only that, having a budget also ensures that you are spending money on the things that are important to you. Of course, you can have that new BMW, or take a trip to the United States, but take care of the most important things first and track them with a budget.
- Shed Unnecessary Debt Payments:
The first step to reducing debt payments is to stop paying high-interest rates.
It is also important to keep in mind the “weight” that debt puts on you. Not all debt is equal and some have a higher psychological impact than others.
- Sprints to Your Retirement:
For most of us, we feel like retirement is far enough away that we sometimes wonder if it will ever come. But the truth is retirement happens when your passive income starts to exceed your necessary expenses.
If you are going to rely on pensions, then that will be closer to when you turn 65…or 75…or if your pension is too small and your expenses too high, it may never come!
Most young people are shifting their view of retirement to one that they can create and start whenever they are ready for it. If you live well below your means, either because you earn a lot of money or you spend very little, then it can happen in just a few years, no matter how old you are.
You can sit down now and make a plan to retire whenever you want. Then start saving and investing to meet that goal, rather than wait until you are old enough for someone else to make it happen for you.
- Stay Protected:
When it comes to finances you need to anticipate all unforeseeable events.
Some of these things you will not be able to prepare for from the start, so it is important to get proper insurance to cover these situations. The primary need for insurance when you are young is to replace the income of the primary earner in your family.
- Stay Flexible:
Life will change and so will your financial situation. A general rule of thumb is to spend less than you earn and save for a rainy day.
Following these fairly simple rules can make sure you are flexible enough to take care of yourself in any situation and help you get ready for whatever life throws at you.
Source: PocketGuard’s Blog