The state of your finances will one day shape your future quality of life. Unfortunately, most people don’t realise this and, rather than looking to the future, they live in the now. Living in the now might seem like a good life philosophy, but it can be a toxic decision regarding your financial situation. The first issue is that you won’t save, because why would you? People who live in the now don’t care about what’s going to happen in ten years. You see this type of attitude all the time:
“I’ll start saving when I begin to make a decent level of money.”
What if that day never comes? Or, more likely, what if it happens a lot later on in your life. You might not start making money at levels you justify high enough to stage until forty. By that point, most of the years of saving are behind you. You’ve missed out on the opportunity to do something with your money and secure a solid future. Of course, saving isn’t the only issue with living in the now.
People who are only worried about tomorrow don’t fret about borrowing. It’s this kind of mindset that caused the financial crisis in 2008. Too many people were living on credit and failing to think about paying back what they owed. Due to this, when the banks collapsed many people lost their homes and were plunged into serious levels of debt. There is already evidence that this type of behaviour is happening again. People are living on a credit and the banks are giving them the power to do this. You don’t want to be one of these individuals. You need to be smart and start proactively handling your financial situation. The best way to start is with a budget.
Planning A Living Budget
The first step is to think about what you earn, what you make and what you can save. Do not put off this lifestyle choice. Don’t make the mistake of thinking you can live free now and live on a budget later. You need to get into the habit of always checking on the state of your finances. In fact, you should be examining your bank account each month to find what you’re spending and where you can cut back.
Think about your monthly income and don’t just include your paycheck. Add in any other ways that you make money through the year. If you don’t have any, we’ll talk about some of the possibilities a little further down. Once you have that sum, you will have discovered the amount that you make per month. Now, we need to subtract all your spendings and bills. This includes everything from energy bills to home insurance and the weekly shop. The amount you have left over then needs to be reduced even more. A lot of this will go into savings. You should be aiming to save approximately one-quarter of your monthly paycheck. Anything left over is what you can spend on luxury items, evenings out and anything else that you enjoy.
At first, the amount that you have to spend might seem quite low. However, there are easy ways to build it up but cutting spending down in other areas. The best way to do this is to think about things that cost money that you don’t enjoy. For instance, energy bills will be costing you a fortune each month. You can cut these down by switching energy providers or by using energy saving techniques. One possibility is to use energy saving bulbs in your home. This will cut those electricity costs right down.
Using Your Savings
After a year or so on this plan, you will start to build up money in your savings. Remember, this isn’t a rainy day fund. You shouldn’t be cutting into these savings if you lose your job or if you end up in financial turmoil. Ideally, you don’t want to spend any money from this pool of capital at all. You should simply be letting it slowly build, but at the same time, you don’t want it to stagnate. Again, in 2008, people learned the hard way what happens when you leave your savings to fester. It becomes vulnerable to economic changes. As such, the first thing that you want to do is keep your savings in a high-interest account. Have a look around the market to find the best interest rates.
Don’t forget; there might be special offers that are of interest to you. In a minute, we’re going to talk about using your savings for investing in property. To do this, you can use a home savings account. This is a scheme set up by the government. They add a sum of money onto whatever you save if it’s being used to buy a property. This is something that you may want to consider.
If you are investing in property, you need to think carefully about what you buy. People tend to start by purchasing their first home. You must think of your first home as an investment rather than just somewhere that you live. This is an error in judgement that many people make. Then, when they want to sell the home, they realise it has fallen in value. Usually, because they haven’t taken care of it. This includes redesigning your home with the latest styles. Allowing your home to fall out of fashion doesn’t reduce the actual value of the home, but it could stop people buying.
If you are buying property other than a home, you may wish to use the services of an independent financial advisor. They can help you find the right investment for you, based on your specific situation.
The property isn’t the only type of investment that you can consider taking on. There are many others that may be of value to you. For instance, you can invest in stock if you know your way around the shareholders market. The key thing to remember about investments is not to jump in head first. Make sure you spend some time exploring possibilities and studying different options. Many people think of investments as a way to get rich fast. We would rather you consider them a way to ensure financial stability for the future.
Boosting Your Income
It’s possible that you are not saving as much as you would like, based on your current income. Usually, this is because you only have your primary career as a source of capital. Obviously, if you’re investing this could be another source. However, to do that, you first have to save a large amount of money. You need to think about ways to boost your income with an additional source. The basic way to do this is by taking on another job, but you want to avoid this option if possible. Instead, you need to think about options that make you money without causing extra work.
For instance, you can buy and sell items on eBay. Buying and selling items is a great little business venture that will earn you extra cash through the year. Many people add a nice cash sum onto their existing income with this venture. Remember, though; Ebay does treat this behaviour as a business once you start to sell enough items.
Alternatively, you can set up something like a blog. Using a blog, you will earn money simply writing about virtually anything that you’re interested in. You’ll start earning cash of your blog once you reach one thousand readers. At that point, you will start to attract the attention of advertisers. The cash flow will be small at first, but with time and effort, it can easily be grown.
Once you have saved enough money to invest, you can multiply these gains. For instance, you can pour money into your blog to make it more attractive to advertisers. Or, if you have bought property, you can rent this out to tenants. Essentially, you will then be taking on the role of a landlord. You’ll be able to make money as long as you take the responsibilities of this position seriously.
Thinking About Retirement
Essentially, this is what you’re building towards. It may sound crazy to think about planning your retirement as early as your twenties, but it isn’t. Retirement is a stage of life when you don’t have a fixed income filling your account each month. Instead, you’ll be reliant on your savings and your pension. If you start saving now, you can ensure two things. First, you’ll have a good quality of life when you retire and second, you’ll be able to retire early. Ten years from now, most people will be working until they are seventy-five. If you start saving now, that won’t be you. Theoretically, you could retire at sixty or even fifty-five. All it takes is to stop living in the present and start looking to the future.
If you do this, you’ll strengthen your financial position and ensure you have a great quality of life.