My Best Advice
Thank you for visiting Budget on a Budget. This blog documents my financial journey, as well as shares vital information to make the most out of your personal financial journey. As a Finance student (you can learn about me here), I have learned valuable information through a textbook. However – I have also learned and developed some of my own financial philosophies over the years, and this blog is a vessel to share them with you. So without further ado, here is my best advice.
1. Get Motivated
Motivation is the key to every success in life. Whether it be personal, professional, or family – motivation is what gets you what you want! Let me help – Imagine you have enough passive income to cover all your expenses. Imagine, you don’t have to do a single thing. Suppose you make money in your sleep, and you can take a vacation without dreading going back to work when it’s all over.
2. Set Goals
Let me ask you something. What do you want? Anything in the world. What do you wish you had more than anything else? A ‘want’ without a plan, is just a dream.
My first boss taught me ‘SMART’ goals. You’ve heard of it – right? No? Let me break it down:
For example, say you want to save for a vacation this winter. Simply saying you want to save for a vacation this winter, is not exactly setting a goal now is it? Using the SMART structure: How much money does the vacation cost? When do you need the money? How are you going to save the money? What changes need to happen to make your goal attainable?
The feeling of creating a plan to reach your goals, and then actually achieving them, is an amazing feeling.
3. Save Your Money….Seriously
Most likely the easiest way to build wealth – saving money. Your parents may have taught you to save 10% of your income. Maybe more, maybe less. 10% is a decent start, but I believe in a more aggressive approach. Save as much as you can. Period.
4. Pay off your Debt
Paying off your debt is a predominant factor in your overall financial health. In my eyes, there are only two effective ways of paying off your debt. The Math Method, or the Psychology Method. The Math method is what I believe in; however, you should choose whichever works best for you. The Math Method is the best if you have a lot of High-Interest debt, such as credit cards. You put your extra cash towards the debt with the highest interest rate. This way you’ll save on the total interest paid overall. The Psychology Method, on the other hand, involves paying your smallest debts first. This method is best when you have many debts with multiple creditors, and you’re finding it hard to keep track of all your bills. This way, you get to enjoy little victories along the way, all while staying motivated. Also, bear in mind, whichever debt-tackling method you choose, make sure you are still saving an emergency fund. It’s not ideal to rely on credit when emergencies come up. How would it feel to rack up your credit cards again after you spent so much time and money paying them down?
5. Money Makes Money
Congratulations! You’ve paid off your debt, or you’ve at least made it more manageable. Now you have all this extra money coming in each month, and it’s time to put it to work for you. To make money on your money, you need to purchase assets which are going to increase over time. There are many examples of appreciating assets; however, my favorite are through real estate, and businesses. If you own a home, you’ve already taken a step in the right direction. Are you familiar with the stock market? “You mean the place where people lose all of their money?” Sure, it’s easy to lose money in the stock market if you’re not careful (or you just have some bad luck). However, let me introduce a (practically) risk-free investment method to achieve long-term gains: Diversification. Invest in a broad market (i.e., Index Funds) long-term, and watch your wealth grow.
I would be comfortable saying there are unlimited vehicles to financial freedom, but the most important one would be taking your first step. Try setting some goals (small, short-term at first) and see what happens. Your future wealthy self will thank you for it!