Everyone strives to become financially stable so that they can afford a good lifestyle for themselves and their families. Financial stability and freedom can have different meanings for everyone, though for some people it is having enough savings to sustain their lifestyle, for others it means constant growth and progress.
Unfortunately, most people fail to achieve their financial goals because they spend a big chunk of their lives trying to find enough money to pay off their debt. Moreover, they never come up with a robust financial strategy that will help them keep track of their earning, spending and debt, and live from paycheck to paycheck.
If you’re one of those who are struggling with managing their finances, here are some strategies that you can employ to have financial freedom and stability to achieve all your financial goals.
Pay off Your Credit Cards
If you plan on managing your finances efficiently you need to make sure that you’re not depending on credit cards. Credit cards have high-interest rates and if you fail to pay them off in full every month, it will have a detrimental effect on your credit.
Moreover, credit cards encourage impulse buying and you end up paying a lot more than you would have to pay otherwise in interest fees even for something as small as a cup of coffee. Plus, not being able to pay off your credit card will also result in a higher interest rate and before you know it, you’ll be paying 20 to 30% interest on your credit card.
Ultimately, credit cards can lead to bankruptcy. If you keep spending money without putting an effective plan in place to pay it off, you become financially vulnerable. And if you end up losing your job or you’re hit with a massive medical bill, you’re done.
Set Financial Goals for Yourself
Setting a financial goal for yourself is vital to achieving financial success. It lays out a clear road map for you and sets you on the path to financial freedom and stability. Setting financial goals will help you figure out how much effort you need to make to achieve your goal and how much you should be spending to get to your target figure.
Moreover, it will help you make important career decisions and give you the confidence to push yourself to get that raise or promotion at work. Most importantly, setting financial goals for yourself will give you a sense of achievement which can be one of the biggest motivating factors for you to keep going.
Many people lose motivation halfway through because they don’t set small achievable goals for themselves that will motivate them every step of the way. They have a very specific idea of financial independence but don’t have a road map that will help them realize their goals.
It can be very tough to manage your finances when you are living paycheck to paycheck. You never have enough money to seriously think about achieving your financial goals and are always worried about having enough to pay the bills and meet daily expenses. If you want to start your journey towards becoming financially stable, you need to start thinking big.
Start exploring different investment opportunities that will help you grow your monthly earnings and give you enough room to realistically think about your goals. You should start by creating an account on an online brokerage site and learn how to invest. There are many tutorials and guides on the internet that will help you get started. Once you know the basics, you can start making contributions to your account, monthly or weekly.
You can also explore other business opportunities like running an online store or selling products on Amazon, eBay, or Etsy. Once you start thinking about growing your earnings, you will realize that there are tons of opportunities just waiting to be explored.
Keep an Eye on Your Credit Score
Your credit score plays a very important role when it comes to managing your finances. If you have a good credit score, you will get a good interest rate when you go to the market to buy a car or a house. If your credit score is below 620, not only will you have a hard time getting a loan, it will come with much higher interest rates.
Furthermore, it can also affect things like car and life insurance because someone who isn’t responsible with their finances is likely to be irresponsible with other aspects of their life, too. The reason you will have to pay a much higher price for your insurance. Hence, you must ensure that you get a credit report regularly, so you know you are on the right track.
Save Up for Big Purchases
Impulse buying is one of the worst habits you can have when looking to achieve financial stability. It means that you end up spending all your money on things that aren’t necessary. On the other hand, if you can delay gratification and save up to buy something meaningful, like a house, you will feel a sense of achievement that will keep you motivated and on the right path.
Plus, avoiding unnecessary spending means that you never miss your bills as opposed to an impulse buyer who would miss their bills more often than not and end up paying extra money in late fees. Thus, having self-control and restraint can come in handy. Not only do you feel a sense of security, but you also feel confident that you can keep going and ultimately achieve your financial goals no matter how long it might take.
Avoid Lifestyle Inflation
As you start making more money and get advanced in your career, you will start spending more and more which is called lifestyle inflation. If you start spending more money to match the lifestyle of your pals, you might fall victim to lifestyle inflation. Even though you will have enough money to pay your bills on time and meet the necessary expenses easily, you won’t be able to build your wealth for the future.
Spending more money now means less money after retirement. However, if you are able to maintain a similar lifestyle as before and put the extra money in your side hustles, savings accounts, and your retirement fund, you will be able to grow your wealth at a much faster speed.
Learn to Differentiate between Needs and Wants
Needs are the things that you require for your survival like food, healthcare, shelter, clothing, and transportation, whereas wants are the things that you want to have but don’t need.
However, often the line gets blurred between the two and you end up spending your money on things that aren’t necessary without knowing how that is going to affect your finances. Make sure that you always prioritize your needs over wants and once all your needs are met, you can use some of your money for wants.
Fully Understand Your Financial Standing
It is very important that you understand your financial standing before you make any major financial decisions. You need to crunch some numbers and figure how much you’re earning and how much of that money is going into bills, groceries, and debt repayments.
Many people ignore the reality of their financial standing and start spending their money the moment they get their paycheck. It means when it’s time to pay the bills, they are left with little to no money.
It is important that before you get your paycheck, you know exactly where the money is going to go. You have to take into account every expense no matter how small it is. You can’t have a careless attitude towards spending your money if you plan on achieving your financial goals.
Pay Off Your Debt
If you track your monthly expenses accurately, you will realize that a big chunk of your money goes into paying interest fees on your loans. Too much debt will paralyze you financially. Therefore, it is important that you pay off all your debt on time, so you can achieve your financial goals.
There are many strategies that you can use to make sure that your debt doesn’t keep siphoning money from you every month. One of the best ways is to consolidate all your loans into one. That way, you don’t have to pay a bunch of interest fees every month. Another effective way to pay off your debt is by getting credit counseling. Your credit counsel will create a robust debt management plan for you and help you pay off all your debt quickly.
Build a Backup Plan
Having a backup plan comes in handy in emergency situations. In case you lose your job or have to pay a hefty medical bill, you will have something to fall back on. If you don’t have a contingency plan, such emergencies can hit you really hard and you may end up in a worse financial state than where you started. You should set a small chunk of your earnings for your backup plan every month so that you have enough money to survive for 3-6 months in case of an emergency.
In order to effectively manage your finances and achieve financial freedom, you need to put in consistent hard work. You must stay away from unnecessary spendings and be sure that you aren’t spending more than you can afford. Following the above-mentioned strategies will put you on the path towards financial freedom and achieving your financial goal. I wish you well, my friends!