Many people who are just getting started with managing their personal finances find saving and investing challenging; when I first started, I too found it difficult to stay on course and achieve my financial goals. In truth, saving and investing the money you have saved are a lot less complicated than you think.
Saving is a straightforward process when you know how to manage your income and expenses properly. Investing, on the other hand, is only a matter of finding instruments that suit your personal requirements and financial goals best. To help you get started with these two elements of good personal financial management, here are the tips and tricks to follow.
Start with a Good Understanding
Knowing the financial state that you are in is how you start working towards saving money and investing them. If you have been keeping track of your income and expenses, this is a fairly easy process to get through. You already know how much you spend and make every month, and you can start with making a monthly budget right away.
If you don’t know your expenses and you have not been managing your income properly, however, you have a thorough review to do. Start listing all of your expenses and income. See how much you are spending on repaying your loans, everyday expenses, and big purchases. Ideally, you want to spend no more than 30% of your income on repaying loans and another 50% on everyday expenses and big purchases.
That leaves you with 20% of your income; this is the portion that you save. Set aside 20% of every income you make as soon as you make them and put the money in a savings account. Simply forget about that 20% and you’ll start saving more and more. The money you save is not to be used unless there is an absolute emergency or an investment opportunity.
Saving More Money
With a clearer understanding of your expenses, you can also start taking steps to save more. Unnecessary expenses can be cut immediately. You can still maintain a certain lifestyle, but there are always expenses you can eliminate and save instead.
It is also a good idea to budget for the following month, just so you can keep track of your expenses better. Use a money management app to help you allocate portions of your income for individual expense category. With every expense you make, add an entry in the app.
The visuals provided by today’s top money management apps allow you to find more ways you save while remaining in-budget. Rather than overspending one month after another, you’ll start identifying more expenses you can cut without sacrificing comfort. At the end of the month, take the money you saved along the way and put it in your savings account.
Dealing with Emergencies
Even when you have a clear plan in mind and a budget to follow, there will still be times when an unexpected expense or an emergency throw you off guard. Don’t worry; you have plenty of options at your disposal when you do have to deal with a financial emergency.
You can review your savings account to see if you can cover the expense using the money you have spent. Only do this if you are dealing with an absolute emergency. Alternatively, you have financing options that you can use to cope with unexpected expenses.
When it comes to using loans for emergencies, sticking with the plan is still important. You can calculate the amount you have to repay every month and see if you can actually fit that amount into your monthly budget. Personal loans and other financing options are very flexible, and you have the option to choose the right one based on your existing budget.
Once you have a loan to use, go a step further and begin reviewing your expenses again. You want to cut as many expenses as possible in order to lessen the stress the loan adds to your monthly budget. The more you can save, the easier it will be to stay on track.
Investing Your Money
The last part of the equation is investing your money. In today’s economy, you actually have a lot of investment opportunities to seize. You can, for example, turn to P2P lending as a way to generate more income from your savings. You can also use instruments like stock and forex – the financial markets in general – to your advantage.
Before you begin investing, there are three main factors to consider: your financial goals, your age, and the amount you will be investing. These three factors will determine the right investment opportunities and instruments to use. They also affect the kind of strategy you use as you build your investment portfolio.
If you want to know more about how to better invest your money, stay tuned for more articles here on this site. In the meantime, use the tips and tricks we covered in this article to start saving enough for future investments.