Work on a Financial Plan

A woman watering a tree shaped in form of money

We often feel that more money will make us happy, but it’s more about feeling secure financially. The problem with many of us is we simply don’t know what to do to attain that level of financial satisfaction we want so badly. Instead of chasing more money and constantly letting yourself feel unhappy when your plans fail, start managing your finances right and build your wealth and wellbeing gradually. Read on to find all the financial tips you’ll need to enhance your happiness.

Decide how you badly you want it

While you might think you want financial independence, you’re not going to get anywhere if you are too afraid to get it. Not afraid to be financially independent, but afraid of the adjustments you’ll have to make in your life to get to that point. There are no shortcuts to getting where you want to be financially unless you are ready to put in the work required. You must also be patient because like transitioning to a healthier lifestyle or learning a new skill, building the financial reality you want for yourself will take time, but every second will be worth it.

Define what financial independence means to you

We all have different financial goals and you have to be clear about what yours are. Judging by another person’s definition is not the best way to go. There are basic goals about everyone works towards, such as having enough (or more than enough) to live off after retirement. How you would like to achieve this is entirely up to you. You must be realistic about your present financial situation and what you’ll have to let go of to reach where you intend to get to. You must also realistically assess the hurdles you’ll have to jump along the way and determine a series of goals that will ultimately lead to financial independence.

Take it one step at a time

If you do not expect to lose 20 pounds the first day you get started on a meal plan, don’t also expect that implementing all the advanced techniques to boost your finances in one day will get you anywhere. Start out slow and watch yourself get more confident with the little triumphs you make along the way. For instance, don’t jump all in and start saving 65 percent of your income, especially if you are not used to saving. Give yourself a timeline and build your way up gradually to that level of savings you would like to reach.

Decide now to live beneath your means… forever

Let’s face it, it would be nice if we could have millions rolling into our accounts every month, but most of us are never going to get there and that’s okay. There is a good chance you have heard this particular nugget of wisdom every now and then, but you must learn to live beneath your means. Before you do anything else, make sure you commit to this as it is the foundation to being happier financially. If necessary, write it on a card and attach it to your ceiling so you can see it when you wake up every morning and go to bed every night: “Live Beneath Your Means”. Or if you would like to rephrase it, “Spend Less Than You Earn.” Are you wondering how you can start spending less than you earn?

  • Start with the service bills

When you look at your service bills, you might find that you have been spending on services you don’t use or don’t use enough. Are you paying for premium cable and Netflix at the same time? Pick one, and where you can step down your plan, please do so. The same applies to unlimited texts. See what you do for the next month after cutting your bills for the first time and try to make further cuts, if possible. You could then review your monthly bills every quarter, every year, or whatever interval works best for you.

  • Track your spending

You could use a good old notepad to do this, but there are a number of apps for your phone that will even remind you to log your spending if you happen to forget. Make sure you don’t leave out even the smallest amount spent and at the end of every month, review your spending. Decide whether you want to eat out less, walk to the office more, or whatever else you could do to cut down your spending next month. You might want to check your mobile app store for Mint, Clarity Money, and Money Lover. They come with nice features to help you track your spending and save more.

  • Change your bank or your account

Ever get those infuriating notifications letting you know the ridiculous amounts your bank is charging you for ATM use and other monthly fees you can’t make any sense of? If you are not using a savings account, find out whether you can get a fair enough interest rate and fewer bank charges if you were to switch to a savings account. Or better still, switch to a different bank, but make sure their interest rates are much better and their charges way less outrageous. Every single penny does matter.

  • Invest in saving energy

Energy bills can be the worst, particularly when you don’t do anything to keep your energy use down. You can start by replacing your bulbs with LEDs and CFLs, air sealing your home, or having a programmable thermostat installed. You don’t have to do it all in a day but once you start, keep going and watch your energy bills reduce significantly over time.

Miniature people beside gold coins

Create a safety net

A safety net is meant to provide you with soft landing should the unexpected happen, like losing your job for whatever reason or experiencing one of those dreadful dry spells if you run your own business or are a freelancer. Also, no one ever decides to get sick, but it happens anyway. What happens if you don’t have any financial cushion to land on and your health insurance does not provide enough cover?

You create a safety net by making provision for an emergency fund that you DON’T TOUCH. You’ll want your emergency fund to be worth at least three to six months of living expenses as an employed person who is receiving a salary. If you are a freelancer and rely wholly on commissions, make that between six to twelve months. What should you do to build that safety net:

  • Lose the debt

Debt will only suck up your funds, so start getting rid of them immediately! There are a couple of methods to try, but you can start by ridding yourself of debts that come with a high interest but not a tax deduction. That will include credit cards and retail accounts. You can take advantage of present low rates by modifying a mortgage, having your high interest instalment loans refinanced for a lower rate, or paying off high-interest credit cards using a low-interest loan you apply for.

  • Open an account and start putting money in

Find a bank that offers good interest rates and open an account for your emergency fund. Every month, make sure you set aside a small amount to put in the account. That money is strictly for emergencies and no, investments don’t qualify as emergencies.

  • Get insurance

No one likes to pay premiums, but insurance can be a life saver, especially when you invest in the right ones. Health insurance, life, and even disability insurance should be on your list. While insurance might seem too expensive, the premium might actually only cost as much as the data plan for your mobile phone. Disability insurance provides you with something you can tap into if you have to be away from work for a long period due to illness or an accident. That would be especially useful if you don’t have anything set aside for that purpose.

Invest what’s left

So, you have set up your safety net nicely and you have enough in there to take care of you should an emergency arise. Now, you can buy yourself an expensive holiday to the Bahamas to reward yourself! No, don’t do that. You are going to keep saving as much as you were saving to build your safety net, but this time around, you’ll invest that money. An investment is anything you do that uses your money to earn more money for you. What should you know as you make up your mind to start investing?

  • Get some financial education

Investing is a lifelong endeavour and you must adequately prepare yourself for it if you must achieve your financial goals. It is no mistake that those who are financially literate end up being more wealthy than those who are not as literate. Don’t feel too lazy or tell yourself you don’t have time to learn about investing and personal finance. You could start by subscribing to at least one online resource and work your way up from there. Got a friend who is a financial adviser? Ask them questions!

  • Don’t be afraid to borrow

The only reason you should ever have to borrow money is to invest it, not spend it on a lifestyle you think you are entitled to. Even when you are borrowing money in order to invest it, make sure your profit will outrun your what you have borrowed. Whether you are borrowing to buy a house, start a business, invest in yourself to get an education, or to invest in bonds and stocks, it has to be well worth it. What you’ll be doing when you borrow for any of these reasons is you’ll be given the much needed leverage to help you attain your financial goals faster.

  • Invest no matter the season

Yes, the market is good sometimes and at other times, it is not so great. Unfortunately, the market cannot be predicted as much as we would like and there is no telling what the future holds. It is better to invest no matter what is happening in the market. If you ever feel at a particular point that it is not a good time to invest, you can invest less in equities, but don’t cut back on accumulating fixed income and cash investments in your portfolio.

  • Keep your investments diversified

For the same reason that there is no telling what will happen with the markets, you must take steps to protect yourself by making sure you keep your investments diversified across a good spread of different asset classes. No matter what asset class you start with, be sure to also invest in real estate, natural resources, cash, peer to peer lending, fixed income investments, and stocks. Imagine you have a certain amount invested in each of these, you’ll not take too big of a hit if any of those sectors crashes and at the same time, you’ll get to take advantage of the strong markets.

  • Play it safe

Take investment one baby step at a time and don’t go all out. For stocks, it is better to opt for index funds as you won’t have to deal with an overdose of capital gains taxes, plus their investment fees are lower. As for real estate investments, keep them in REITs or real estate investment trusts.

  • Develop an investing policy

Once you have gotten on track with getting that financial education, you’ll soon find that you would need to include an Investment Policy Statement (IPS) in your financial plan. Doing this will help you become a more disciplined investor by making it easier to stick with your plan without heading in different directions when the market experiences higher volatility. Your IPS might be specific about what ratio of stocks to fixed-income investments you should focus on, informed by your level of risk tolerance and your time horizon. The IPS should also specify what you expect in terms of yearly returns for your portfolio over a given period of time which could be as long as two decades.

You don’t have to wait until you have finished building your safety net and are ready to start investing before you start educating yourself financially. Start now!

A man stacking gold coins

Save, save, save!

It is never too early or too late to start saving. Once you commit to living beneath your means, saving should follow that. Start paying attention to saving from this minute. Every penny you receive henceforth in the form of salary, commissions, or gifts, start locking a good chunk of it away. Every time you plan your budget, make room for saving goals. Start with deciding what your saving goals are, but make them realistic and reasonable. Remember, your saving habit is not one you’re ever going to shake off as you’ll be saving for life.

No matter what stage of your life you are right now, you have to start saving for retirement. If you are in your twenties, you can start putting away 10 to 20 percent of your annual income yearly. As you age, you’ll want to put away even more. To work out how much you should save towards your retirement each year, multiply your current annual salary by 9. The figure you get should be your goal for how much you want to have in savings as you retire. You should also factor in the age you would like to retire.

Start a side hustle

Truth be told, neither the job market nor the economy are as stable as we would like them to be. As you should definitely diversify your investment portfolio, so should you diversify your sources of income. It is not necessarily about making you rich, but it’s more about having a plan B and making sure you are not thrown completely off balance should anything suddenly cut off your primary source of income.

If you are employed full time, you can devote a couple of hours a week to creating a side business. It could be based off a passion you have that you know is also profitable. You would be creating an extra source of income that will go into savings and reducing debts while working on stuff you enjoy doing. If you are a business owner, you should look at diversifying into other sources of income related to what you do.

Be generous

It might seem like giving to people means losing money, but it really isn’t. Being generous is not entirely about the money as it also has a lot to do with the way you treat people. It doesn’t take much to treat every person you meet, wherever you meet them, like they are the most important person on the planet. When you do that, they will acknowledge and appreciate you, and you will be a much happier person. The truth is more generous people attract wealth to themselves and have little to be sad about, so start giving more!