Invest Money The Smart Way! – Step By Step Guide

Personal Finance / 2022-10-26

Invest Money The Smart Way! A step-by-step guide

Learning how to invest money might seem scary, but it’s easier than you think, and you can start no matter how much you have saved.

Investing money in the stock market is a way to build wealth and save for long-term goals such as retirement, but figuring out the best strategy to invest that money can feel daunting. This doesn’t have to be the case.

You should do more than just earn money by working in an organization or starting a business. It might sound complicated, and you do not have that kind of time, but it is not as tough as it sounds. It would be best if you had a primary idea about a few essential things. If you learn to manage your funds efficiently and conquer the art of how to grow money, you are one mark closer to being more prosperous and wealthier.

Almost everyone reading this wants to know how to grow money; hence, one should learn about some investing ways that will help you grow your money and funds.

Becoming a successful investor doesn’t involve taking scary risks, but building wealth slowly over time.

Follow these seven simple principles to invest money for healthy returns without taking too much risk.

Separate savings from investments.
Invest to reach long-term goals.
Start sooner rather than later.
Use tax-advantaged accounts.
Don’t be a stock picker.
Avoid high fees.
Use automation.

Depending on how much risk you’re willing to take, there are a couple of scenarios that could play out:

No risk — You’ll never lose a cent of your principal.
Some risk — It’s reasonable to say you’ll either break even or incur a small loss over time.

There are, however, two catches: Low-risk investments earn lower returns than you could find elsewhere with risk, and inflation can erode the purchasing power of money stashed in low-risk investments.

If you opt for only low-risk investments, you’re likely to lose purchasing power over time. It’s also why low-risk plays make for better short-term investments or a stash for your emergency fund. In contrast, higher-risk investments are better suited for higher long-term returns.

12 best investments

1. High-yield savings accounts

2. Certificates of deposit (CDs)

3. Money market funds

4. Government bonds

5. Corporate bonds

6. Mutual funds

7. Index funds

8. Exchange-traded funds (ETFs)

9. Dividend stocks

10. Individual stocks

11. Cryptocurrencies and alternative assets

12. Real estate

1. High-yield savings accounts

Online savings accounts and cash management accounts provide higher rates of return than you’ll get in a traditional bank savings or checking account. Cash management accounts are like a savings account-checking account hybrid: They may pay interest rates similar to savings accounts, but are typically offered by brokerage firms and may come with debit cards or checks.

Savings accounts are best for short-term savings or money you need to access only occasionally — think of an emergency or vacation fund.

If you’re new to saving and investing, a good rule of thumb is to keep between three and six months’ worth of living expenses in an account like this before allocating more toward the investment products lower on this list.

Due to lower overhead costs, online banks tend to offer higher rates than what you’ll get at traditional banks with physical branches.

Investment companies and robo-advisors such as Betterment and SoFi offer competitive rates on cash management accounts.

2. Certificates of deposit

A certificate of deposit, or CD, is a federally insured savings account that offers a fixed interest rate for a defined period of time.

A CD is for the money you know you’ll need at a fixed date in the future (e.g., a home down payment or a wedding). Common term lengths are one, three and five years, so if you’re trying to safely grow your money for a specific purpose within a predetermined time frame, CDs could be a good option. It’s important to note, though, that to get your money out of a CD early, you’ll likely have to pay a fee. As with other types of investments, don’t buy a CD with the money you might need soon.

CDs are sold based on term length, and the best rates are generally found at online banks and credit unions.

3. Money market funds

Money market mutual funds are an investment product, not to be confused with money market accounts, which are bank deposit accounts similar to savings accounts. When you invest in a money market fund, your money buys a collection of high-quality, short-term government, bank or corporate debt.

Money you may need soon that you’re willing to expose to a bit more market risk. Investors also use money market funds to hold a portion of their portfolio in a safer investment than stocks, or as a holding pen for money earmarked for future investment. While money market funds are technically an investment, don’t expect the higher returns (and higher risk) of other investments on this page. Money market fund growth is more akin to high-yield savings account yields.

Money market mutual funds can be purchased directly from a mutual fund provider or a bank, but the broadest selection will be available from an online discount brokerage.

4. Government bonds

A government bond is a loan from you to a government entity (like the federal or municipal government) that pays investors interest on the loan over a set period of time, typically one to 30 years. Because of that steady stream of payments, bonds are known as a fixed-income security. Government bonds are virtually a risk-free investment, as they’re backed by the full faith and credit of the government.

The drawbacks? In exchange for that safety, you won’t see as high of a return with government bonds as other types of investments. If you were to have a portfolio of 100% bonds (as opposed to a mix of stocks and bonds), it would be substantially harder to hit your retirement or long-term goals.

It is more for conservative investors who would prefer to see less volatility in their portfolio.

The fixed income and lower volatility of bonds make them common with investors nearing or already in retirement. These individuals may not have a long enough investment horizon to weather unexpected or severe market declines.

You can buy individual bonds or bond funds, which hold a variety of bonds to provide diversification, from a broker or directly from the underwriting investment bank or the government.

5. Corporate bonds

Corporate bonds operate in the same way as government bonds, only you’re making a loan to a company, not a government. As such, these loans are not backed by the government, making them a riskier option. And if it’s a high-yield bond, these can actually be substantially riskier, taking on a risk/return profile that more resembles stocks than bonds.

Investors looking for a fixed-income security with potentially higher yields than government bonds, and willing to take on a bit more risk in return. In corporate bonds, the higher the likelihood the company will go out of business, the higher the yield. Conversely, bonds issued by large, stable companies will typically have a lower yield. It’s up to the investor to find the risk/return balance that works for them.

Similar to government bonds, you can buy corporate bond funds or individual bonds through an investment broker.

6. Mutual funds

A mutual fund pools cash from investors to buy stocks, bonds or other assets. Mutual funds offer investors an inexpensive way to diversify — spreading their money across multiple investments — to hedge against any single investment’s losses.

If you’re saving for retirement or another long-term goal, mutual funds are a convenient way to get exposure to the stock market’s superior investment returns without having to purchase and manage a portfolio of individual stocks. Some funds limit the scope of their investments to companies that fit certain criteria, such as technology companies in the biotech industry or corporations that pay high dividends. That allows you to focus on certain investing niches.

Mutual funds are available directly from the companies that manage them, as well as through discount brokerage firms.

7. Index funds

An index fund is a type of mutual fund that holds the stocks in a particular market index (e.g., the S&P 500 or the Dow Jones Industrial Average). The aim is to provide investment returns equal to the underlying index’s performance, as opposed to an actively managed mutual fund that pays a professional to curate a fund’s holdings.

Index mutual funds are some of the best investments available for long-term savings goals. In addition to being more cost-effective due to lower fund management fees, index mutual funds are less volatile than actively managed funds that try to beat the market.

Index funds can be especially well-suited for young investors with a long timeline, who can allocate more of their portfolio toward higher-returning stock funds than more conservative investments, such as bonds.

Index funds are available directly from fund providers or through a discount broker.

8. Exchange-traded funds

Exchange-traded funds, or ETFs, are like mutual funds in that they pool investor money to buy a collection of securities, providing a single diversified investment. The difference is how they are sold. Investors buy shares of ETFs just like they would buy shares of an individual stock.

Like index funds and mutual funds, ETFs are a good investment if you have a long time horizon. Beyond that, ETFs are ideal for investors who don’t have enough money to meet the minimum investment requirements for a mutual fund because an ETF share price may be lower than a mutual fund minimum.

ETFs have ticker symbols like stocks and are available through brokerages.

9. Dividend stocks

Dividend stocks can provide the fixed income of bonds as well as the growth of individual stocks and stock funds. Dividends are regular cash payments companies pay to shareholders and are often associated with stable, profitable companies. While share prices of some dividend stocks may not rise as high or quickly as growth-stage companies, they can be attractive to investors because of the dividends and stability they provide. Keep in mind: dividends in taxable brokerage accounts are taxable the year dividends occur. Whereas stocks are taxed when the stock is sold.

For any investor, from first-timer to retirees, there are specific types of dividend stocks that may be better depending on where you are in your investing journey.

Young investors, for example, may do well to look into dividend growers, which are companies with a strong track record of consecutively increasing their dividends. These companies may not have high yields currently, but if their dividend growth keeps up, they could in the future. Over a long enough time frame, this can lead to returns that mirror those of growth stocks that don’t pay dividends.

Older investors looking for more stability or fixed income could consider stocks that pay consistent dividends. On a shorter timeline, reinvesting these dividends may not be the goal. Rather, taking the dividends as cash could be a part of a fixed-income investing plan.

Similar to others on this list, the easiest way to buy dividend stocks is through an online broker.

10. Individual stocks

A stock represents a share of ownership in a company. Stocks offer the biggest potential return on your investment while exposing your money to the highest level of volatility.

These cautionary words aren’t meant to scare you away from stocks. Rather, they’re meant to guide you toward the diversification that buying a collection of stocks through mutual funds provides, as opposed to buying individually.

Suited for investors with a well-diversified portfolio who are willing to take on a little more risk. Due to the volatility of individual stocks, a good rule of thumb for investors is to limit their individual stock holdings to 10% or less of their overall portfolio.

An easy way to buy stocks is through an online broker. Once you set up and fund a brokerage account, you’ll choose your order type and become a bona fide shareholder.

11. Cryptocurrencies and alternative assets

If you’re not investing in the stock, bond or cash equivalent instruments listed above, there’s a good chance your investment is part of the alternative assets class. This includes gold and silver, private equity, hedge funds, cryptocurrencies like Bitcoin and Ethereum, and even coins, stamps, alcohol and art.

Suitable for investors who want to diversify away from traditional investments and hedge against stock and bond market downturns.

While some online brokers will offer access to certain alternative investments, other alternatives are available only through private wealth management firms. However, there are ETFs — such as oil, gold and private equity ETFs — that track the asset itself, as well as companies related to the asset.

12. Real estate

Traditional real estate investing involves buying a property and selling it later for a profit, or owning property and collecting rent as a form of fixed income. But there are several other, far more hands-off ways to invest in real estate.

One common way is through real estate investment trusts or REITs. These are companies that own income-generating properties and offer regular dividend payments. Real estate crowdfunding platforms, which often pool investors’ money to invest in real estate projects, have also risen in popularity in recent years.

Good for investors who already have a healthy investment portfolio and are looking for further diversification, or are willing to take more risk for higher returns. Real estate investments are highly illiquid, so investors shouldn’t put into an investment any money they may need to access quickly.

Some REITs can be purchased on the public stock market through an online stockbroker, while others are only available in private markets. Similarly, some crowdfunding platforms are open to accredited investors only, while others don’t put restrictions on who can invest.

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Start Saving Today! Don’t Waste Time!

Personal Finance / 2022-09-13

Saving Steps For Success

To achieve the concept of financial freedom is very important to have sufficient savings because these funds will be beneficial in the future. You can take advantage of the auto-debit feature from your bank so that it is always routine to save every month. A minimum of 20% every month should go to savings. Of course, more than 20% every month for savings, would be better, as long as your daily needs can be met.

Guidelines For Saving

Prepare an Emergency Fund

An emergency fund is a must. In the end, you need an emergency fund of three to six months of your income so that would be the final emergency goal. Before you start to save for any long-term bigger goals, first you should save at least $1000 for your emergency fund.

It should be emphasized again, that the concepts of emergency funds and savings are different. Although both are funds that are set aside from the income we receive each month, they both have different goals. Emergency funds are funds that are kept to finance uncertain conditions when and for what use. In other words, emergency funds are used to finance unforeseen conditions such as repairs on your car if it breaks down, finances daily expenses in case of termination of employment, and so on.

Meanwhile, savings funds are funds that are kept to finance conditions that have been clearly defined in advance. Such as savings for retirement, savings for education, savings for home renovations or a downpayment, savings for faster repayment of debt and becoming debt-free, and others.

There is no definite formula for the size of the emergency fund. However, you can refer to the amount 6 times your monthly expenses as a goal for the emergency funds. Also important, separate your emergency fund account from your daily savings and expense account, so you are not tempted to use the collected emergency funds.

Pay Off Debt on Time

Debt is okay as long as you are fully responsible for returning it according to the agreed nominal value. Having accumulated debt will certainly make life feel more difficult and far from financial freedom. So, before you go into debt, set a clear goal for what you owe and adjust it to your financial condition.

Paying debts on time to avoid a bad credit score and pending late payment penalties.

With a simple lifestyle, you can start to save more. Also shopping sparingly, and avoiding debt will get you closer to your financial goal of becoming debt free and finally financially free. Buying less stuff can help you get richer.

By spending less, two things work in your favor. One, you’ll have more money to put aside for your financial freedom. Two, you’ll learn that you need a lot less stuff to survive, which also helps you put aside more money.

Don’t spend money you don’t have to pretend that you have money.

Say goodbye to debt.

Monthly debt payments are the biggest money suck when it comes to saving. Debt robs you of your income! So, it’s about time you get rid of that debt. The fastest way to pay off debt is with the debt snowball method. This is where you pay off your debts in order from smallest to largest. Sounds kind of intense, right? Don’t worry, it’s more about behavior change than numbers. Once your income is freed up, you can finally use it to make progress toward your savings goals.

Start Saving For Retirement

Whether you retire at retirement age or retire early, you’ll still have the same living expenses to cover, but won’t have the same sort of income or earning potential. And, it’s for this reason that planning and saving for your retirement is key to attaining financial freedom in the future.

If you get a head start on saving for your retirement, you’ll allow compound interest to work in your favor, which means you’ll be in a better position to enjoy yourself when you leave the workforce. It’s never too late to begin saving for retirement, but the sooner you begin, the better off you’ll be.

How to Start Saving Money

You’ll only start saving money when you learn healthy money habits and let your future needs be more important than your current wants. You can stop the cycle of living paycheck to paycheck with the next trick: Make a zero-based budget before the month begins.

A budget is all about being intentional. It helps you create a plan so you can see where your money is going and find out how much you can save each month. When you make a zero-based budget, you’re giving every single dollar a task before you save or spend it. Remember: It doesn’t matter how much money you make, it only matters how you spend and save the money you make.

Need help staying on top of your spending? Download our free budgeting spreadsheet. It’s the best way to keep track of all your expenses.

Create a designated savings account

To save money fast, you need to separate the money you spend on your daily needs from the money you intend to save. This means setting up a designated savings account.

By doing so, you minimize the risk of you dipping into your savings funds to cover daily expenses. Instead, it encourages you to stick within your day-to-day budget while keeping your savings safe from temptation!

Depending on where you live you have different options but Revolut is a very good option, easy to set up and it has one of the lowest fees offering several advantages.

Another great option for easy control of your finances is Wise where you can also request a Wise Card and use it for your daily spending and benefit from very low fees on transfers.

Practical Ways to Save Money

Save automatically.
Setting up automatic savings is the easiest and most effective way to save, and it puts extra cash out of sight and out of mind. Automatic savings means you have a process in place to save at regular intervals, whether that’s monthly, weekly, or daily.
Instruct your employer to direct a certain amount from your paycheck each pay period and transfer it to a retirement or savings account (or both). Traditionally, you can set this up using your employer’s direct deposit, ask your HR representative for more details and set this up today.
‘Start Small. Think Big,’ with a short-term goal.
People save more successfully when they set short-term goals. For instance, committing to saving $25 a week or a month for 6 months is much more attainable that setting a goal to save $500 a month for a year. Once you reach the short-term goal, you’ll have created a habit of saving you can be proud of! You’ll be able to keep going strong with a new goal.
Take full advantage of employer matches to your retirement plan.
Often as an incentive, employers will match a certain amount of what you save in a retirement plan such as a 401(k). If you don’t take full advantage of this match, you’re leaving money on the table.
Save your windfalls and tax refunds.
Every time you receive a windfall, such as a work bonus, inheritance, contest winnings, or tax refund, put a portion into your savings account.
Use the 24-Hour Rule.
Avoid purchasing expensive or unnecessary items on impulse with a self-imposed 24-hour rule. For any non-essential item, wait 24 hours before purchasing. It’s perfect for online shopping where your items can simply be added to your cart to purchase later.
Start with a goal of reducing your credit card debt by just $1,000.
That $1,000 debt reduction will probably save you $150-200 a year in interest, and much more if you’re paying penalty rates of 20-30 percent.
Cut down on your grocery budget.
Most people after they do a budget are shocked to find out how much they’re spending at the grocery store each month. It’s so easy to walk through those aisles, grabbing a bag of Oreos here and a few bags of chips there, and then top it off with the fun goodies at the register. But those little purchases add up quite a bit and end up blowing the budget every single month.
Plan out your meals each week.
Plan meals and take a good look at what you already have in your pantry before you head to the store. Because why would you want to buy more of what you already have? And if you want to stick to your list leave the kids at home.
Cancel automatic subscriptions and memberships.
Chances are, you’re paying for multiple subscriptions like Netflix, Hulu, Spotify, gym memberships, trendy subscription boxes and Amazon Prime. It’s time to cancel any subscriptions you don’t use on the regular. And make sure that you turn off auto-renew when you make a purchase. And for those subscriptions, you do want to keep around, think about sharing memberships with some family or friends. A lot of streaming services, like Netflix and Hulu, let you watch your favorite shows from two or more screens. That way, everyone wins and saves!

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Master How To Set Your Personal Goals Like A PRO!

Personal Finance / 2022-09-11

Live Your Life Your Way, Plan It!

Many people feel they work hard, but they don’t seem to get anywhere worthwhile.

A key reason that they feel this way is because they haven’t spent enough time thinking about what they want from life, and haven’t set themselves proper personal goals. After all, probably you wouldn’t start on a major journey without a set destination!

A goal can be a lot of different things but not a dream or a hope. I dream of owning my own home. I hope to have my own business. Those are great and admirable dreams, but they are not goals.

A goal is specific. It’s measurable. Reframing those dreams into goals looks like this: I will save $50,000 in the next five years and have enough money for a down payment on a home.

For something to truly be a goal, you need to know when you get there. When you reach it. Those kinds of specific goals will set you up for success.

Setting Personal Goals: Dream Big but Start Small

Setting personal goals gives you long-term vision and short-term motivation.

One of the best ways to set a goal is to pick a small, tangible milestone.

If your dream is to save money for a home in the long term, then your first goal could be to save $1,000 in the next three months. If your dream is to run your own business, decide what that means for you. Maybe it means you will have a higher income and become financially independent or manage your own time how you think best.

Dream big, but start with a goal of reaching one realistic step that will take you closer. Setting an actual goal should be small and tangible. Once you hit the first one, you can set another goal that brings you further down the path to your dream.

How to Set a Goal

First, consider what you want to achieve in life, and then commit to it. Set specific, measurable, attainable and relevant goals that motivate you and write them down to make them feel tangible. Also, set a deadline for your goals. Then plan the steps you must take to realize your goal and cross off each one as you work through them.

By knowing precisely what you want to achieve, you know where you have to concentrate your efforts. Also setting your lifetime personal goals will show you the steps needed to achieve them and you’ll be able to set your financial goals.

You set your goals on several levels:

First, you create your “big picture” of what you want to do with your life and identify the large-scale goals that you want to achieve.
Then, you break these down into smaller and smaller targets that you must hit to reach your lifetime goals.
After this, you can analyze the requirements to achieve your small goals and on the same principles, you can set your financial goals.
Finally, once you have your plan, you start working on it to achieve these goals.

This is why we start the process of setting goals by looking at your lifetime goals. Then, we work down to the things that you can do in, the next five years, then next year, next month, next week, and today, to start moving towards them.

Step 1: Setting Lifetime Goals

Determine your life goals. Ask yourself some important questions about what you want for your life. What do you want to achieve: today, in a year, in your lifetime?

A career life goal might be to open your own business. A personal goal might be to have a family one day.

The first step in setting personal goals is to consider what you want to achieve in the future. Setting lifetime goals gives you the overall perspective that shapes all other aspects of your decision-making.

To cover all important areas in your life, try to set goals in some of the following categories:

Career – What level do you want to achieve in your career? This might be the job of your dreams but also running your own business.
Financial – What financial requirements does achieving your goal have? How is this related to your career goals?
Education – Is there any knowledge you need to achieve your goal? What information and skills will you need to have to achieve other smaller goals along the way?

Spend some time brainstorming these things, and then select one or more goals in each category that best reflect what you want to do. Then trim again so that you have a small number of really significant goals that you can focus on. Do not forget to focus on the financial goals required in achieving your personal goals.

As you do this, make sure that the goals that you have set are ones that you genuinely want to achieve, not ones that your parents, family, or employers might want.

Step 2: Setting Smaller Goals

Break the big picture down into smaller and more specific goals. Areas might include career, finances, family, education, or health. Begin to ask yourself questions about what you’d like to achieve in each area and how you would like to approach it within the given time frame.

For the life goal “I want to open my own business,” the smaller goals may be “I want to learn to manage a business effectively” and “I want to open a construction company.”

Once you have set your lifetime personal goals and the financial goals required for this, set a five-year plan than a one-year plan, a six-month plan, and a one-month plan of progressively smaller goals that you should reach to achieve your lifetime goals. Each of these should be based on the previous plan.

Then create a daily To-Do List of things that you should do today to work towards your lifetime personal goals.

Finally, review your plans, and make sure that they fit the way how you want to live your life.

Staying on Course

Once you’ve decided on your first set of goals, keep the process going by reviewing and updating your To-Do List daily.

Periodically review the longer-term plans, and modify them to reflect your changing priorities and experience.

A useful way of making goals more powerful is to use the SMART mnemonic. While there are plenty of variants SMART usually stands for:

S – Specific.
M – Measurable.
A – Attainable.
R – Relevant.
T – Time-bound or Trackable.

For example, instead of having “to be rich” as a goal, it’s more powerful to use the SMART goal “to be debt free by December 31, 2026.” This will only be attainable if a lot of preparation and all the small steps had been completed beforehand!

Further Tips for Setting Your Goals

The following broad guidelines will help you to set effective, achievable personal goals:

State each goal as a positive statement – “Save $1000 next month.” is a much better goal than “Don’t spend $1000 next month on useless things.”
Be precise – Put in dates, times and amounts so that you can measure achievements. If you do this, you’ll know exactly when you have achieved the goal and can take complete satisfaction from having achieved it.
Set priorities – When you have several goals, give each a priority. This helps you to avoid feeling overwhelmed by having too many goals and helps to direct your attention to the most important ones.
Write goals down – This crystallizes them and gives them more force.
Keep operational goals small – Keep the low-level goals that you’re working towards small and achievable. If a goal is too large, then it can seem that you are not making progress towards it. Keeping goals small and incremental gives more opportunities for reward.
Set performance goals, not outcome goals – You should take care to set goals over which you have as much control as possible. It can be quite dispiriting to fail to achieve a personal goal for reasons beyond your control! If you base your goals on personal performance, then you can keep control over the achievement of your goals, and draw satisfaction from them.
Set realistic goals – It’s important to set goals that you can achieve. All sorts of people can set unrealistic goals for you. They will often do this in ignorance of your own desires and ambitions. It’s also possible to set goals that are too difficult because you might not appreciate either the obstacles in the way, or understand quite how much skill you need to develop to achieve a particular level of performance.

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Categorize Expenses For The Best Budget!

Personal Finance / 2022-09-10

To track where your money goes every month you can use a simple monthly budgeting tool and learn to categorize expenses.
If you already have a list of your expenses, you need to break them down into various expense categories. The reason for this categorization is to enable you to create a guideline for your monthly spending.

A budget is vital for a precise allocation of money for future expenses. However, a detailed budget will help you allocate funds for specific needs and make it easier for you to make a budget calendar to track your spending.

To make a realistic and precise budget, you need to be more detailed when creating spending categories. This is to give you a clear picture of what you are spending on every month.

You can categorize expenses in your budget in two ways.

You can either create a master expense category to cover a group of expenses, such as creating a “Utilities” category instead of dividing it into smaller categories like electricity, water, cell phone, gas, etc.
Or the second option is to break down each expense category into specific expenses and allocate money precisely to specific needs. For instance, you can create categories for “Groceries,” “Eating out,” and “Kids’ lunches” instead of just creating a “Food” category.

What are Fixed Expenses?

Fixed expenses are all those purchases you need to incur to live. In other words, these are necessary expenses. These expenses include:

Rent
Transportation
Groceries,
Home and utilities
Insurance,
Bills
Education
Health and personal care

What are Discretionary Expenses?

Discretionary expenses are those purchases that improve the quality of your overall lifestyle and these expenses include:

Shopping and entertainment
Food and dining
Travel
Memberships

Here you can find a comprehensive list of categories you can use to categorize expenses in your detailed budgeting plan:

Income

Paycheck
Investment
Returned Purchase
Bonus
Interest Income
Reimbursement
Rental Income

Entertainment

Arts
Music
Movies & DVDs
Newspaper & Magazines

Shopping

Clothing
Books
Electronics & Software
Hobbies
Sporting Goods

Bills & Utilities

Television
Home Phone
Internet
Mobile Phone
Utilities

Personal Care

Laundry
Hair
Spa & Massage

Miscellaneous

Cash & ATM
Check

Health & Fitness

Dentist
Doctor
Eye Care
Pharmacy
Health Insurance
Gym
Sports

Food & Dining

Groceries
Coffee Shops
Fast Food
Restaurants
Alcohol

Investments

Deposit
Withdrawal
Dividends & Cap Gains
Buy
Sell

Education

Tuition
Student Loan
Books & Supplies

Gifts & Donations

Gift
Charity

Travel

Air Travel
Hotel
Rental Car & Taxi
Vacation

Auto & Transport

Gas & Fuel
Parking
Service & Auto Parts
Auto Payment
Auto Insurance

Fees & Charges

Service Fee
Late Fee
Finance Charge
ATM Fee
Bank Fee
Commissions

Taxes

Federal Tax
State Tax
Local Tax
Sales Tax
Property Tax

Kids

Activities
Allowance
Baby Supplies
Babysitter & Daycare
Child Support
Toys

Business Services

Advertising
Office Supplies
Printing
Shipping
Legal

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Creating A Budget To Save Money

Personal Finance / 2022-09-04

Why is creating a budget so important? Well, to understand exactly, here is a simple example.

If I have a take-home pay of, say, $2,500 a month, how can I pay for housing, food, insurance, health care, debt repayment and fun without running out of money? That’s a lot to cover with a limited amount, and this is a zero-sum game.

The answer is to make a budget.

Most people need some way of seeing where their money is going each month. A budget can help you feel more in control of your finances and make it easier to save money for your goals. The trick is to figure out a way to track your finances that works for you.

What is a budget? A budget is a plan for every dollar you have. It’s not magic, but it represents more financial freedom and a life with much less stress. Here’s how to set up and then manage your budget.

If you’re looking to create a personal budget, start with these six steps

The following steps can help you create a budget.

Step 1: Calculate your net income

The foundation of an effective budget is your net income. That’s your take-home pay—total wages or salary minus deductions for taxes and employer-provided programs such as retirement plans and health insurance. Never focus on your total salary instead of net income as this could lead to overspending because you’ll think you have more available money than you do. If you have other income than your salary, make sure to keep detailed notes of your contracts and pay in order to help manage irregular income.

Step 2: Track your expenses

Once you know how much money you have coming in, the next step is to figure out where it’s going. Tracking and categorizing your expenses can help you determine what you are spending the most money on and where it might be easiest to save.

Begin by listing your fixed expenses. These are regular monthly bills such as rent or mortgage, utilities and car payments. Next list your variable expenses—those that may change from month to month, such as groceries, gas and entertainment. This is an area where you might find opportunities to cut back. Credit card and bank statements are a good place to start since they often itemize or categorize your monthly expenditures.

Record your daily spending with anything that’s handy—a pen and paper, an app on your smartphone, or budgeting spreadsheets that you can download from our webpage.

You can download our simple excel budget by clicking here.

Step 3: Set realistic goals

Before you start sifting through the information you’ve tracked, make a list of your short- and long-term financial goals. Short-term goals should take around one to three years to achieve and might include things like setting up an emergency fund or paying down credit card debt. Long-term goals, such as saving for retirement or your child’s education, may take decades to reach. Remember, your goals don’t have to be set in stone, but identifying them can help motivate you to stick to your budget. For example, it may be easier to cut spending if you know you’re saving for a vacation.

Step 4: Make a plan by creating a budget

This is where everything comes together: What you’re actually spending vs. what you want to spend. Use the variable and fixed expenses you compiled to get a sense of what you’ll spend in the coming months. Then compare that to your net income and priorities. Consider setting specific—and realistic—spending limits for each category of expenses.

You might choose to break down your expenses even further, between things you need to have and things you want to have. For instance, if you drive to work every day, gasoline counts as a need. A monthly music subscription, however, may count as a want. This difference becomes important when you’re looking for ways to redirect money to your financial goals.

Choose a budgeting plan: Any budget must cover all of your needs, some of your wants and — this is key — savings for emergencies and the future. Budgeting plan examples include the envelope system and the zero-based budget.

We recommend the popular 50/30/20 budget to maximize your money. In it, you spend roughly 50% of your after-tax dollars on necessities, no more than 30% on wants, and at least 20% on savings and debt repayment.

We like the simplicity of this plan. Over the long term, someone who follows these guidelines will have manageable debt, room to indulge occasionally, and savings to pay irregular or unexpected expenses and retire comfortably.

Let’s check the 50/30/20 budget and find out how this budgeting approach applies to your money.

Allow up to 50% of your income for needs when creating a budget.

Your needs — about 50% of your after-tax income — should include:

Groceries.
Housing.
Basic utilities.
Transportation.
Insurance.
Minimum loan payments. Anything beyond the minimum goes into the savings and debt repayment category.
Child care or other expenses you need so you can work.

If your absolute essentials overshoot the 50% mark, you may need to dip into the “wants” portion of your budget for a while. It’s not the end of the world, but you’ll have to adjust your spending.

Even if your necessities fall under the 50% cap, revisiting these fixed expenses occasionally is smart and check if there is anything you could change to save a little more.

Leave 30% of your income for wants in your budget. Separating wants from needs can be difficult. In general, needs are essential for you to live and work. Typical wants include dinners out, gifts, travel and entertainment. It’s not always easy to decide. Are restorative spa visits (including tips for a massage) a want or a need? How about organic groceries? Decisions vary from person to person.

If you’re eager to get out of debt as fast as you can, you may decide your wants can wait until you have some savings or your debts are under control. But your budget shouldn’t be so austere that you can never buy anything just for fun. Every budget needs both wiggle room — maybe you forgot about an expense or one was bigger than you anticipated — and some money you’re entitled to spend as you wish.

Your budget is a tool to help you, not a straitjacket to keep you from enjoying life, ever. If there’s no money for fun, you’ll be less likely to stick with your budget — and a good budget is one you’ll stick with.

Commit 20% of your income to savings and debt repayment when creating a budget based on the 50/30/20 rule.

Use 20% of your after-tax income to put something away for the unexpected, save for the future and pay off debt. Make sure you think of the bigger financial picture; that may mean two-stepping between savings and debt repayment to accomplish your most pressing goals.

Automate your savings: Automate as much as possible so the money you’ve allocated for a specific purpose gets there with minimal effort on your part. An accountability partner or online support group can help so that you’re held accountable for choices that blow the budget.

Step 5: Adjust your spending to stay on budget

Now that you’ve documented your income and spending, you can make any necessary adjustments so that you don’t overspend and have money to put toward your goals. Look toward your “wants” as the first area for cuts. Can you skip movie night in favor of a movie at home? If you’ve already adjusted your spending on wants, take a closer look at your spending on monthly payments. On close inspection, a “need” may just be “hard to part with.”

If the numbers still aren’t adding up, look at adjusting your fixed expenses. Could you, for instance, save more by shopping around for a better rate on auto or homeowners insurance? Such decisions come with big trade-offs, so make sure you carefully weigh your options.

Remember, even small savings can add up to a lot of money. You might be surprised at how much extra money you accumulate by making one minor adjustment at a time.

Step 6: Review your budget regularly

Once your budget is set, it’s important to review it and your spending on a regular basis to be sure you are staying on track. A few elements of your budget are set in stone: You may get a raise, your expenses may change or you may reach a goal and want to plan for a new one. Whatever the reason, get into the habit of regularly checking in with your budget by following the steps above.

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Achieve Financial Freedom In 5 Steps

Personal Finance / 2022-09-04

Could you quit your job tomorrow and be financially stable without any income? If the answer is no, you’re not alone.
Financial Freedom is the ultimate goal for many of us. But what does it really mean, and how do you get here? Those are the questions that a lot of people get stuck on. Financial Freedom might seem more like a dream than anything else to many people. And the goal here is to shift that dream into a reality.

There are actionable steps that anyone can take to get closer and closer to financial freedom. The bonus is, that even if you don’t fully achieve it, you will be in a better financial position than when you started. So don’t have anything to lose? Being financially free isn’t as straightforward and clear-cut as you are or you’re not. There are different stages along the road. Before you can get started, you need to know where you are right now.

Stops on the road to financial freedom

Financial freedom doesn’t have to mean retiring early. It just means you have the independence to lead the life you want to without being burdened by money. Ultimately, it’s about controlling your finances rather than them controlling you. How much control you have based on your goals and current situation all determine how financially free you are. Here are some of the stops on the road to financial freedom.

No freedom
Living paycheck to paycheck with no savings or emergency fund
Breathing room
You are starting to pay off debts and you’re spending less than you are earning
Security
You are starting to build other revenue streams such as investments that cover your basic living expenses
Independence
Your overall cashflow covers your basic living expenses and your lifestyle
Financial Freedom
At this stage, your cash flow will be greater than your essential living costs and lifestyle costs. You are now financially free!

The steps you take towards financial freedom all depend on where you are now, and where you want to be. Unfortunately, there are no shortcuts to being financially free unless you win the lottery or something similar. The most important step to reaching financial freedom is to Have a Clear Goal Ask yourself a few questions. What does it mean to you to be financially free? What are the long-term and short-term goals? The more specific you are with your goals, the better.

Life Goals

The most important thing that you need to determine is what your own personal goals are. There are so many paths in life, and whichever you chose will have implications on your financial goals and your quest for financial freedom. This is the biggest limitation of the step plans that we discussed above. Those plans assume that everyone wants to follow the traditional life script – go to college, get married, buy a house, have kids, work a job you hate, retire. The truth is, most of us don’t want to follow that script, but it’s been sold to us as the only path. Figuring out what you really want out of life is the first step to planning your path to financial freedom.

Financial Goals

Once you’ve figured out your Life Goals, it’s time to map out your Financial Goals. What do you need to do financially to achieve your life goals? Your financial goals will vary wildly based on your life goals. If your main goal is to build generational wealth for your children, you may want to focus on funding a college savings plan and buying a home. However, if your life goal revolves around traveling in the world your financial goals are going to be focused on financing that lifestyle. Now you know what you want to achieve, it’s time to get to work.

The 5 Steps to Financial Freedom

In general, the steps are similar and can be used by everyone. Whether saving for a house or travel, you still need to be saving money. Whether you are investing for a child’s college fund or your retirement, you still need to be investing. Getting your finances in order is the first step to achieving your financial goals regardless of what those goals are. There are five main steps of financial freedom – they are creating a financial plan, building a budget, saving, investing, and paying off debt. Let’s take a look at each of them.

Financial Goals
After you figure out what your life goals and financial goals are, your next step is to make a plan to achieve them. You will need to write out your current status and your goals, then determine some actionable steps that you can take to achieve your goals.
Building a Budget
The financial plan is an important building block and will help get you into the correct headspace. But the first actionable step that you need to take is building a budget. I know budgeting isn’t exciting or glamorous, and it can be downright boring but it needs to be done. You need to start taking control of your money and telling it where to go. The basic premise of a budget is to control your money rather than let your money control you.
Saving
Now that you are in control of your spending, it’s time to start saving some money. Hopefully, you’ve identified places in your budget where you are spending too much money and can cut back. There are numerous ways to save money, from saving on living expenses to saving at the grocery store. You can use an app to find even more savings. You can use the money that you saved for a variety of things. You can add more money into your emergency fund, or you can use it to start working on the other two steps of financial freedom.
Investing
Although saving money is great and you should be funding your short-term wants and needs via a savings account, it’s not enough for long-term goals. Investing is the best way to beat inflation and ensure that you are financially prepared for any eventuality. It is preferred to invest in low-cost index funds because they offer automatic diversification and they don’t take too much of your hard-invested money away in fees. However, there are numerous other ways to invest. You can purchase individual stocks, real estate, or commodities, and you can even invest in yourself by starting a side hustle or building a business. It’s best to diversify your investment portfolio to include a mix of different types of assets.
Pay off Debt
The last step is paying off debt. Debt is like a ball and chain that you carry around with you. It holds you back from pursuing new opportunities because you constantly have to focus on paying what you owe.

You should focus on paying off the highest interest rate debt, such as credit card debt, first if you can. Put the cards away and promise yourself that you won’t use them unless there is an emergency and you have to. Next, focus on student loan debt, which is a huge burden to an entire generation. Apply for loan forgiveness if you can, and pay as much as you can each month. Finally, try to avoid getting into more debt. Work to build good credit before applying for a mortgage, or avoid buying a house altogether if homeownership isn’t one of your big life goals. Homeownership isn’t for everyone, and if you don’t want it, don’t let what society thinks to push you into such a huge financial decision.

What Should I Do First?

Many will tell you that you should do these things in a certain order, but it’s hard to say what’s most important. One thing that most do agree on is that you should try to get an emergency account first. Some experts will tell you that you should work on paying off debt next, but I disagree. If you are thirty or forty thousand dollars in debt, it could take you years to pay that off. Those are years when you will be missing out on compound interest and investment gains. Therefore, I think you should do all three. Yep, all three are important and you should do all of them simultaneously.

Let’s say you have a hundred extra dollars (or whatever currency you’re using) at the end of each month after making minimum payments on all of your debts and investing in your retirement account. You should split that hundred dollars up between savings, paying off debt, and non-retirement investment accounts. Since you already have that thousand dollars in your emergency savings account, you can put the smallest amount in there. Sometimes even as little as ten bucks a month in emergency savings is okay. A little growth is still growth and will help prevent you from getting into even more debt should an emergency arise. The remaining ninety dollars should be split between investments and paying off debt, depending on your financial goals. If your goal is to improve your credit score so you can buy a house, you should focus more on paying off the debt. If your goal is to quit your job as soon as possible and live off investment income, you should focus more on building up your non-retirement investment accounts.

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