🟡Admit It — Your Financials Are a Huge Mess and Here’s How to Fix It

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If you fail to plan, you’re kind of planning to fail!

The state of your finances is a big factor in determining the type of life you will lead. This is simply because how much money you have determines your purchasing power, and what you can or can’t afford.

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Nobody wants to live wondering how they’re going to survive on a day-to-day basis, bothered about essentials such as food, clothing, and a roof over their heads.

For some, it’s so they can afford the best luxuries life has to offer, getting that piece of jewelry, buying that new gadget, or equipment, or even buying a new electric car.

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Do you have trouble buying that item you’ve always wanted?
Are your finances kind of a mess?
Would you like to fix that?

Well, you’re in luck my friend because that’s exactly what we’re going to help you do in this article. So, without further ado let’s jump into our journey to financial freedom.

If you want to fix your finances, the first thing you need to do is to know where you stand financially, and to do this, you need to identify your sources of income whether it’s your salary or other gigs that you earn from.

More importantly, you need to know how much exactly you make from these income streams and where your money is going.

Read also: 5 personal finance mistakes that will make you broke

Now, why is that important?

Well, it’s simple! Understanding this helps you to reconcile your spending with your income to ensure you can budget properly, and guess what, this is the right way to audit your finances.

Making a budget that works based on your income and following it is the first step to improving your financial situation. Now, your budget is a plan on how you will spend your money, and remember —

“If you fail to plan, you’re kind of planning to fail!”

Also, focusing on spending categories with the most relevance and dealing with quick wins is another step toward fixing your finances.

In the business world, it’s called “opportunity cost”, and it involves spending on items based on their level of importance.

For a lot of people — housing, child care, and transportation take up most of their expenses, and given that you can’t exactly just up and leave your current housing arrangements, you could make plans about it.

Think about getting yourself a roommate or moving in with someone who needs one. If you have a family, you might want to consider moving into a smaller home or you could reduce costs if you could move closer to your workplace.

It might be more expensive in terms of housing costs, but it sure would save you a lot in the long run on transportation. These quick wins don’t cost as much but can show results pretty quickly.

Things like reducing the number of times you order out, canceling unnecessary subscriptions, or taking a break from an expensive hobby doesn’t sound like much on their own, but when you combine them, well, they amount to a good bit of money that could go to other things.

Look, it’s not about becoming a cheapskate, it’s just going to help you get your finances in check.

Another step in the right direction would be to find a way to increase your income. Many people talk about making money from extra sources, but that might not be the first option to consider.

What if you could make more money from your current job? We’re pretty sure that you’re wondering “how”. Well, here’s a simple trick — “ask for a raise!” This works better if you haven’t gotten one in a while, and remember that to do this, you’ve actually got to be good at your job and to communicate well with your employer.

Adding a few new skills to your portfolio is another sure way to get your boss to consider giving you a raise.

Hey, you’ve got more skills now, so why not?

If you’re self-employed, something to consider would be increasing your rates. Try not to sell your time by charging hourly, instead charge for the results that you deliver.

Read also: The three roads of wealth (very instructive)

Let’s take an example:

You build apps and you’re working on a new finance app for a client. Most times, they don’t care how many hours you actively work on doing that, they just want their app done and they want it done well.

This way you can earn a whole lot more while working fewer hours without being worried about being charged hourly, but right before starting the project, think of different ways and avenues that this app can make money for the client and then draw your fee up based on that.

Now, after you’ve increased your source of income, you can now try to diversify your sources of income.

If there’s any lesson to be taken away from the Covid-19 pandemic, it’s that there are several ways we can all make money. The first thing to do is to leverage on skills you already have or even develop new ones to help you out.

Why is this necessary? Well, you could easily start a side business based on your existing skills.

Say, for example, you’ve got marketing skills. Well, you could reach out to small businesses and startups to help them promote their businesses. You could equally venture into other things such as selling products online, writing, or even creating courses or webinars with the knowledge you have, and still in the spirit of making money, there are other things you could do like “investing”.

Investing is a sure passive income that makes money for you while you aren’t even there — that sounds like a steal, right? Of course, it does!

Interestingly enough, there are a bunch of investing opportunities available to starters and experts alike in the investment world, but just a suggestion from us — don’t get too excited about an investment deal, instead do your own research about it and speak with financial advisors before throwing a ton of money at anything.

Now, that you’ve got a good grasp on what you earn and how much you spend, you now have to set financial goals for your future. You need to have specific goals for the short-term, medium-term, and long-term.

Your short-term goals could be saving for a car, a house, a vacation, a new business, or even starting an emergency fund.
Your long-term goals are those in five to twenty years from now, such as a college fund for your kids, or a retirement plan.
It’s equally as important that you still break them down into shorter-term goals.

For instance, if you plan to start a company in 10 years, you would need to start calculating today for how much you would need for that goal to be achieved. You need to start taking into account how much you have at the moment and how much you will need to save for your target.

And this goes for both short-term and long-term goals.

Just remember to make them smart goals, specific, measurable, attainable, relevant, and time-bound, and we can assure you that you’ll be well on your way.

Life as we know it is full of surprises and there’s no way to sugarcoat this, which is why everyone needs to have an emergency fund. Do not disregard this. It is really important to get your finances on track.

Wondering why an emergency fund is so important?

Well, unexpected situations like losing your job, a fire at your home, a medical problem, or a pandemic — these things happen and when they do happen, you don’t want to be caught up having to drain your bank account completely.

There are so many unplanned and unpredicted incidents that could happen, that could bring on financial collapse. So, if you don’t already have an emergency fund, now is a great time to start.

The most common advice is to set aside money amounting to about six months of your income, but with all the surprises we’ve seen cropping up, you might want to keep some more stored.

So, if you’ve already got an emergency fund, you may want to increase it by adding a few thousand dollars extra over the next few months. This fund will help you to avoid having to turn to credit cards or loans with high-interest rates during times of emergency.

It’s also helpful that a lot of these financial institutions have gone digital, giving you the opportunity to automate things.

If you’ve got problems keeping track of your financial plans and goals, then automating your finances might be the way to go. This could imply setting up pre-authorized payments for your bills, pre-authorized transfers, or automating how much you contribute to your investment accounts.

Through automation, you save yourself time and the stress that comes with checking your bills and paying them on a month-to-month basis. If you want to meet your goals, then automating your finances is a great place to start.

Moving forward, it’s almost impossible to improve your financial situation if you’re swimming in debt. So, settling your debts should definitely be at the top of your financial goals. Commit to paying off your debts, especially the ones that have higher interest rates.

We know, this might sound like it’ll take an awful lot to do, but as you make more money and reduce the expenses you incur on a month-to-month basis, you could easily use the extra cash to settle these debts.

Being debt free is very important in your journey to financial freedom, and just a quick note on credit, it can be a really useful tool if used right.

From helping you to acquire a house to buying a car and other properties, it’s a vital part of our financial lives, but here’s the thing with credit — it is often misused. It’s either financing a lifestyle you can’t afford or generally living above your means.

Read also: 5 easy ways to get 1% better everyday

But here are two simple tricks that we’ve learned about credit:

If you cannot pay for whatever it is in cash, then you simply cannot afford it.
If you can’t pay for it twice, you can’t afford it.
Also, it is vital that you know your net worth. Your net worth is the amount that accounts for the value of all of your assets minus all of your liabilities. Doing this is a strong test of your financial position as it shows you where you are financially compared to just tracking your income.

Monitoring your net worth over time helps you to measure your financial progress objectively, and it helps you to know that you’re on the right path. Not only does your net worth tell you where you are currently, it helps to show you areas you need to make improvements on.

Simply put, you want to increase your net worth and this is achieved by increasing your assets or reducing your debts or even both, but fixing your finances is a little deeper than everything we’ve mentioned so far.

It also means you must develop and educate yourself as much as possible.

Carefully research, read books, journals, and blog posts. Follow the investment in stock markets, and know the economic situation of your country.

There is a sort of comfort that knowledge brings that translates to even your financial situation. You’ll certainly be able to sleep better at night when you’re financially literate, up to speed with your finances, and even making efforts to make things better.

And most importantly, you must have a constant hunger for excellence and this means you should make a conscious effort to up your skills. Take courses and get certifications in areas you think would have a positive impact on your job or your career.

Read also: 10 life shortcuts that actually works (top wisdom)

“Treat upskilling as an investment, not an expense!”

At this point, not having any insurance is simply a bad decision. It’s a great way to protect yourself, your family, and your assets in the event of an emergency or an accident.

We hope that you’ve got a better understanding of your finances and the stuff we’ve talked about in this article will help you to save yourself from financial messes that could spring up.

Just a reminder here: Always seek help from a professional financial advisor at the end of the day. These folks are trained to put your finances back on track. So, a quick chat might be everything that you need to see things more clearly.

CONTRIBUTED BY Alux

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