personal finance

12 Personal Finance Tips: Journey To Financial Freedom

Personal finance has not yet become a required subject in high school or college, so you might be fairly clueless about how to manage your money when you’re out in the real world for the first time.

There are tons of personal finance tips, tricks, and rules that can greatly improve your financial well-being. However, some are more important than others. Here are twelve personal finance rules in particular that are extremely important to your financial health, both now and in the future.

‘When I was young I thought that money was the most important thing in life ; now that I am old I know it is.’   – Oscar Wilde

Although making resolutions to improve your financial situation is a good thing to do at any time of year, many people find it easier at the beginning of a new year. Regardless of when you begin, the basics remain the same.

Financial literacy is not a skill ladies and gentlemen, it’s a lifestyle. Financial stability is a by-product of a proper lifestyle.

 

12 Personal Finance tips to help you make and save money:

1. The proper way to save personal finance:

START A SINKING FUND

Open a separate savings account where you put money away for a big purchase sometime in the future or to invest in Equities or to buy a second house or for the higher education.

When you get a paycheck , transfer funds to this account and forget about it, keeping Inflation in mind.

BONUSES AND INCREMENTS ARE FOR SAVING

It’s nice to treat yourself after that nice bonus but do you know what is nicer? Investing that money so you can grow it to treat yourself even better in the future.

A person with poor money habits will blow up that extra monthly income. What will an intelligent person like you do? that’s right, put it away and invest it.

personal finance2. Control your cost of living

‘Wealth consists not in having great possessions, but in few wants’, said Epictetus.

One kind of inflation which is making our budget unstable is Lifestyle Inflation.

There are numerous high-income professionals who have ended up with no savings despite a successful career because they lived a high-consumption lifestyle without having an expense plan.

Planning your current expenses is a part of investing in your future. When you take time out and make an expense plan, you’re doing your future self a favour and trust me, you will thank your past self for this.

Next Step : Learn How to spend money wisely

3. Borrow money effectively

Debt is simply borrowing money to spend on things we cannot otherwise afford to buy on our current income streams.

Taking on debt is the easiest way of raising capital. What you choose to do with the capital has the power to make the debt good or bad.

personal financeGOOD DEBT :

  • An investment that will grow in value and/or produce long-term returns.
  • Good debt makes you richer.

BAD DEBT :

  • A liability that takes you farther away from your financial goals.
  • Bad debt makes you poorer.

It’s quite simple:

personal finance

4. Diversify your finances by allowing your money to work for you

Investments are multi-layered instruments with varying degrees of risk and returns. A good portfolio has a diverse selection of uncorrelated investment types, which are called asset classes.

By investing in various asset classes, you are reducing the risk of losing money.

personal finance

Following are the different types of assets:

  • Publicly listed equities
  • Mutual funds
  • Fixed income schemes
  • Real estate
  • Gold
  • Venture Capital
  • Commodities
  • Insurance

It sounds simplistic, but many people struggle with this basic rule.

Make sure you know what your job is worth in the marketplace, by conducting an evaluation of your skills, productivity, job tasks, contribution to the company, and the going rate, both inside and outside the company, for what you do. Being underpaid even a thousand dollars a year can have a significant cumulative effect over the course of your working life.

No matter how much or how little you’re paid, you’ll never get ahead if you spend more than you earn. Often it’s easier to spend less than it is to earn more, and a little cost-cutting effort in a number of areas can result in big savings. It doesn’t always have to involve making big sacrifices.

These life skills are very important. These will help you to reach your financial goals.

6. Watch your bank account

Live below your means for some time and set money aside for investing every month.It’s crucial to do this.

Sophia Amoruso, the founder and owner of the mega-successful online clothing store Nasty Gal says, ‘Money looks better in the bank than on your feet.’ She started with used clothes and an eBay account. Now she is worth over $250 million. Think about this the next time you’re going to make a spontaneous splurge.

7. Start a Side Business

Just because you are employed does not mean that you cannot have something else that you do in your spare time. We are living in the Information Age where it’s easier to start a business today than it has ever been before. And if that business involves something that you love to do, it’s pure win-win, isn’t it?

The trick is to come up with a successful ‘side hustle’ or micro business that provides an alternative source of income.

Is there something you can do to bolster your financial security?

Yes, two things: Create multiple sources of income and invest.

There are numerous jobs that you can do on the side. Some of these that I have come across are:

  • Online tutor
  • Language coach
  • Blogger, Columnist, Writer
  • Social media consultant
  • Personal chef, caterer, baker
  • Researcher
  • App designer, web designer
  • Graphic designer
  • Photographer
  • Videographer
  • Editor or proofreader
  • Singer, band musician
  • Personal shopper, stylist
  • Travel planner
  • Fitness trainer
  • Diet and nutrition consultant
  • Pet grommer
  • Artist, craftsman

Creating additional income streams will accelerate your savings and investment plan.

Often, such ‘side’ activities can be the stepping stone to an entrepreneurial career.

Next Step: Read

 

personal finance8. Be aware of the three types of income and how you pay taxes on each differently

There are three types of income, and they’re not treated equally. Knowing this can help you better understand your taxes and which income you to make more of. The three types of income are:

1) earned income (like what you make from your day-job),

2) portfolio income (the income you make from the stock market when your investments go up)

3) passive income (the income you make from assets you own, while not actively working (e.g.: rental income or business income).

Each type of income is taxed differently, too. You pay a higher percentage in taxes from active income than from portfolio income, typically.

Knowing the different types of income can help you better understand how your money works and how you can save on taxes, too.

9. Invest in yourself to make more money

Spend money to grow in your career by going to conferences, taking courses, reading books, or something else specific to your job. It may feel like you don’t want to spend the money on something like this, but if it pushes you outside your comfort zone and causes you to advance in your career, it’s usually worth the money.

Just don’t ignore the opportunity to make money on your own terms because you’re not there yet. Take a course and get started. You’re worth it.

Next Step: Read  Ultimate Guide: 52 All Time Best Books For Entrepreneurs

10. If you don’t know what to do, start a blog

If you feel stuck and don’t know what to do, I highly recommend starting a blog. A blog can be a great way to write about something you care about and make money. This is what I did – I started my blog while I was practicing engineering.

Next step:

10. Spend money on experiences, not things

Spend money on experiences instead of things. This has proven to make people happier in the long run. Years down the road, you will remember the trip you took more than the purse you bought. This was hard for me at first but as I’ve gotten used to it, my mindset has shifted to prioritize experiences, which has made more meaningful memories for me.

personal finance11. Teach your kids about money

Unfortunately,Personal finance has not yet become a required subject in high school or college, so you might be fairly clueless about how to manage your money when you’re out in the real world for the first time.

If you have kids, it’s important to teach them about money. Personal finance isn’t taught in school usually, so you are their only resource for learning about money.

Next Step: Read 3 Things School Did Not Teach You About Money

12. Read personal finance books

If you don’t know where to start with your own financial education, start by reading a personal finance book. This is how I started teaching myself about money, and I can’t recommend it highly enough. It can be just enough to get you moving in the right direction with your money. Never stop Learning.

Next Step: 

Bonus Tip:

Learn about investing yourself

A good financial tip to live by is to learn the basics of investing yourself. This will help you make more informed decisions and help protect you against potentially bad investments.

Next Step: How To Invest In Share Market (And Earn Money)

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