Managing money may seem easy but most people find this task challenging. According to the 2013 Financial Literacy survey commissioned by the National Foundation for Credit Counseling (NFCC), most people are unable to manage their finances due to financial illiteracy. Figures from the aforementioned survey show that 43% of American adults are not saving enough money for retirement or emergencies. In addition, 37% of adults do not clear outstanding credit card debts at the end of the month. The good news is it is easy to get out of the debt trap. Here are some tips on how to save money and ultimately attain financial freedom:
Set Financial Goals and Invest Wisely
If you do not have financial goals, it is easy to spend all your money on unnecessary items. To avoid this outcome, Merrill Lynch’s director of Behavioral Economics, Michael Liersch recommends setting clear financial goals and pursuing them aggressively. Make sure you write your monetary policy goals down and commit yourself to achieving them. For example, if you set aside just $50 every week, you can build a small fortune at the end of a few decades. According to Merrill Lynch’s Wealth Management team, $50 saved every week translates to $2,500 every year. If you invest this amount in a tax-deferred account, you will have $80,000 at the end of 20 years. On the investment front, put your money in assets that you understand. Unless you are financial wizard, avoid fancy investments like derivatives and futures. Instead, go for binary options trading or trade assets like stocks, precious metals, or commodities. You could also invest in real estate.
Avoid Bad Debt
Many people acquire bad debt instead of good debt. When you take out a mortgage, you are acquiring good debt because the value of your residential home or commercial property is likely to appreciate. In addition, you can use a home equity line of credit (HELOC) to borrow money to cover emergencies like paying hospital bills instead of withdrawing retirement funds. On the other hand, acquiring high¬-interest credit card debt is not a good idea because it will drain your finances. The rule of thumb is to carry out thorough research before acquiring debt. Compare rates from various lenders and determine how much you can afford to set aside for settling outstanding debts at the end of the month.
Create a budget of your monthly income and track spending carefully. This might seem like a no-brainer but many people fail to follow this simple rule and then spend a lot of money unwisely. You should budget for all essential items including electricity, food, car fuel, mortgage payments, health insurance payments, and rent. Moreover, make a list of sources of income such as salaries, consultancy fees, or DIY projects that bring in money. If you are spending more than you earn, you need to cut some of your expenses.
All said, it is relatively easy to manage debt and invest wisely. Nevertheless, you will have to set realistic financial goals and invest wisely to achieve them. This is in addition to avoiding bad debt as well as tracking income and spending.