You might be wondering how you can start building a solid financial plan to achieve your goals and reach your dreams. The first step is to understand how you’re currently spending and building debt so that you can take action to change. There are many ways you can build a solid financial foundation from the get-go. It doesn’t have to be difficult, and there are several small actions you can take right now that will have a lasting impact on your future. Here are four simple strategies to help avoid getting into debt and build a more responsible financial life:
Pay Yourself First
The first step to avoiding debt is to pay yourself first. This can be anything from increasing your monthly contributions to putting a portion of each paycheck towards your debt repayments. Many people who are financially broke make the common mistake of only paying the minimum amount required by their creditors. And, in order to make ends meet, most people will accept the compromise of paying more than they should.
The reasoning behind this is that the loan payments that you’re making could be going towards your children’s education or your retirement. But, what ends up happening is that the money that you’re sending to the loan company is actually contributing to your debt. When you pay yourself first, you’re not taking money away from something else that you need. In fact, you’re saving the money that you owe yourself and putting it towards debt reduction. This can be a difficult concept to wrap your head around, but once you get started, there’s no turning back.
Build an Emergency Fund
It doesn’t matter if you’re a stay-at-home parent or an entrepreneur. Everyone needs an Emergency Fund to protect them from financial setbacks. In fact, if you don’t have one, you could be setting yourself up for a lot of trouble in the future. It’s important to have this account built up before you have children, get married, buy a home, and a host of other life events that could require some extra cash. Why is an emergency fund so important? Well, it can protect you from any unexpected expenses that come up, like a car repair or medical bill. It’s also helpful if you lose your job, because it ensures that you have enough money to cover basic needs, like food and shelter, while you look for a new job.
Know What You’re Paying For
It’s easy to get caught up in the excitement of starting a new business or buying a new car. It’s important to remember that these purchases should be made with the purpose of growing your business or strengthening your financial position as an individual. There’s a difference between getting something nice to make you feel good and actually accomplishing something. It can be easy to get caught up in the moment and forget the purpose of your purchases. You should be asking yourself questions like: What am I trying to achieve here? What are my long-term goals? What will this purchase help me achieve? If you forget about the purpose of your purchases, it’s easy to get carried away with the idea that having that new car or that new business isn’t a big deal. But, remember, these items have a cost attached to them – both financially and in terms of time. What you don’t want to do is spend more time trying to earn the cash to pay for these items than you would have spent actually achieving something worthwhile.
Stay Focused On What you Need
It’s easy to get caught up in the idea that there are always things that you need. And, really, that’s not necessarily true. What you need is whatever it is that you need to achieve your desired result. For example, you might need a car to get to work, but what if you can’t afford one? What if you don’t want to take public transit or car-pool with your coworkers because that’s not what you want to do? What if you don’t need a car, but you’re trying to impress a potential client? In situations like these, it can be tempting to make a purchase that you don’t need, and it’s important to stay focused on what you actually need. It’s also important to remember that there are plenty of things that you don’t need, but you might feel like you do.
The good news is that you can build a solid financial foundation by simply following these steps. It doesn’t have to be difficult, and there are several small actions you can take right now that will have a lasting impact on your future financial health. It’s important to remember that a solid financial foundation starts with paying yourself first. This can be anything from increasing your monthly contributions to putting a portion of each paycheck towards your debt repayments. The next step is to build an Emergency Fund to protect you from financial setbacks. It’s also important to know what you’re paying for. There are plenty of things out there that don’t actually need to be purchased. The real challenge is identifying what you need so that you can stay focused on what you’re trying to achieve.