How Can I Be Financially Smart?

To achieve your desired lifestyle, there are a few essential things that you will need to do. One of the most important is to get a good handle on your finances.

Fortunately, there is a host of useful information online that can assist you in your efforts. Many of which have withstood the test of time. With that being said, here are 5 proven methods that can help you to become financially stable.

5 Methods To Help You To Become Financially Stable

Saving

Having savings is integral to your well-being, financially and otherwise. Besides being able to cover unforeseen expenses that can pop up regularly, saving enough for big milestones like retirement requires starting in time. If you wait until the last minute, you’re more likely to fall short of your goals or worse – find yourself in financial hot water.

A proven and straightforward approach to saving is to “pay yourself first” through automated transfers to your bank account that coincide with paycheque deposits. Your savings then become just another bill, but one that you’ll benefit from in the future.

Spending

Track where your money goes in order to identify your spending habits and find saving opportunities. You can then create a budget based on allocating your money between your must-haves and nice-to-haves.

Even simple changes like packing your lunch and using cash instead of credit whenever possible can help keep your spending in check.

Managing debt

Living within your means is most effective for managing debt. In other words, you need to spend less money (or make more of it) to lighten your debt load. One of the first steps in managing debt is to tackle the amounts you owe that are incurring the most interest. Don’t be afraid to negotiate with creditors for reduced rates – every little bit counts and can shave off substantial time and money from your repayment plan.

Credit

When you only pay the minimum monthly balance, month after month, it becomes an expensive means of buying things. It’s important to understand what you’re getting into, from the interest rate you’re being charged and fees that may apply to what your credit limit is. That way you can appreciate the true cost of your credit card purchases.

Investing

Investment choices available to you typically fall into three main categories: cash and cash equivalents, fixed-income products like government bonds, and equities (stocks). In general, the higher the expected return on an investment, the more risk you’ll need to take to achieve that return. Cash and GICs are typically on the lower end of the risk continuum, while equities are on the higher end.

What does it mean to be smart with finances?

There’s no one-size-fits-all when it comes to finances. What works for one person might not work for someone else. But in general, there are a number of tools that you can use to help sort out your finances and learn how to be smart about money.

Being money smart means finding ways to incorporate various tools and resources into your life. It also means setting up financial goals that are specific, measurable, attainable, realistic, and timely, often referred to by the acronym SMART.

No matter the type of financial roadmap you’re looking to create, you have a higher chance of success when you use a SMART goal.

How does being money smart improve your life?

Having your finances sorted can help you sort out what you want with your life and when you want to accomplish it.

By setting up a goal to get rid of your credit card debt, you can free up money to save for a downpayment, and raise your credit score, increasing your chances of getting a decent mortgage from a bank. Knowing how to be smart with your money can help you with your long-term goals.

If you want to know how to be smart with your money, you first need to have the right tools and habits. These habits can help you figure out how to successfully manage your money.

Habits to help make you financially smarter

Automation

Automate your savings, automate your loan repayments, automate your bills.

The fewer steps you have to actually make to move your money to where it needs to be, the more likely you might be to stick to it.

The great thing about automated savings and repayments? Ideally, once it’s set up, there are zero steps for you to do each month. You can set and forget.

Have specific goals

It can be hard to stick to your savings budget, especially when you have to give up on yet another thing to make it happen.

But you’ll likely feel less of a twinge when you have to skip that extra drink when you remember the money’s going towards something you really want.

Whether it’s a holiday, a house, retirement, or even a less responsible-sounding purchase such as a flash new tattoo, it’s great to have a goal.

Invest your money

Keeping all your extra money in a savings account isn’t always as savvy as it sounds. Sure, there is little risk, but over time, your purchasing power drops lower and lower.

One way to be more proactive is to consider investing. A little bit of research and a long enough time horizon could see your investments grow. Keep in mind that investing is not without risk and you need to be prepared for markets to go up and down.

Unexpected cash

Tax refund? Inheritance? Birthday money?

As tempting as it might be to treat yourself, you might be better off tucking that extra money away in a savings or investment account or putting it towards your debt.

After all, if you weren’t expecting to get that money, you won’t miss it. And your financial goals will thank you!

Prioritise high interest debt

If you’re juggling multiple debts, it can be really frustrating trying to spread out your cash to cover all the repayments.

Sound familiar? If so, you might want to consider the avalanche debt-busting method.

First, you find the debt with the highest interest. For all your other debts, you make the minimum repayments. You then put everything else towards knocking off that high interest debt.

Once you’ve done that, do the same for the debt with the next highest interest.