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Managing Your Personal Finances in the New Year

Stress Management 1st February 2017 Sona Bajaj

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When it comes to managing your personal finances, decide what your goal is – saving x% of your income every month, or investing y% of it yearly, etc. Once you have a structured plan, formulate well-thought out steps that will help you achieve your goals. Start with one step at a time. When you repeat these steps again & again over a sustained period of time, they become powerful financial habits that help you achieve your financial goals.

Here are few simple, straightforward and timeless methods to follow in pursuit of smarter saving, spending and investing. Let’s take a look. And, while you’re going through these keep this quote running at the back of your mind:

Don’t save what is left after spending; spend what is left after saving.” ~ Warren Buffet

Never forget your financial priorities

Spending less and saving more can be particularly difficult when you think of it in terms of all the things that you are letting go of in order to save. Instead, think of framing your priorities in terms of your end goal and where it will take you in 5-10-15 years. It is always easier when you think of long-term benefits instead of day-to-day spending, thereby prioritizing what is more important. For instance, think about what the freedom of financial security will bring you – you can own a car, a house, fund your own higher education, a college education fund for your kids and a secure retirement account. All you must do is remember that it takes time, patience and consistency.

Pay yourself first

A lot of people don’t make daily/weekly/monthly/yearly budgets for themselves, thinking of it as a waste of time. If you want to make saving a priority, make budgeting a priority and take a look at how you do it. For example, consider your monthly income as enough to meet your basic needs. Now, when you decide to begin saving, start by budgeting for your needs and bills, then figure out how much you want to save. The amount that remains is your money to spend. Paying yourself first is basically an automatic way to prioritize your savings. You can set up automatic monthly deposits into your personal savings account. Think of your savings and investments as a monthly bill that you cannot afford to miss.

Settle your debts

Warren Buffett illustrates just how important it is to break the paycheck-to-paycheck cycle: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

When you’re living this cycle, it can be quite difficult to find the time and resources to take a step back and address the core of your financial problems. It is but obvious that trying to “patch up” the repercussions of your problems rather than the root cause of them will keep the cycle going as it is. While a financial “patch” might help you for a month or two, it’ll most definitely set you up for a failure in the long run. Again, “changing vessels” is easier said than done, but if you can find a way to change boats rather than patch a sinking one, it will be worth it even though it might take a little more time and effort.

Automate your savings

Ask any financial expert and they will always recommend you to automate your savings. It is the most effective way to save. Since you have to make the decision to automate only once, it’s off your hands thereafter, making it less likely for you to fidget with your contributions. If you set up a good practice around your financial resolution, it’s easier to keep because you don’t have to recommit to it each day like you do you’re your exercise and diet. Automating your savings will leave your will power free to focus on other things.

Keep it simple

Always ensure you put your money in the right place. Have a diversified portfolio. The best places to invest are in the things you know best. If you invest in things you have less or no knowledge of, you’re just gambling. You don’t have to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for extremes. Take help from financially sound experts, if you must.

Invest in yourself and be conservative everywhere else. Know yourself well, so that you don’t bite off more than you can chew.

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