Money might not be the most important thing in life, but it most certainly makes the world go round. And, although it’s not the be-all and end-all for happiness, it’s something that most people closely tie to their overall quality of life. So, if you’re amongst the millions out there that are looking for ways to improve their financial conditioning, here are some pointers that will help.
Evaluate your Financial Health
Money comes in, money goes out. For many people, this is about as deep as their understanding gets when it comes to personal finances. Rather than ignoring your finances and leaving them to chance, a bit of number crunching can help you evaluate your current financial health and determine how to reach your short and long-term financial goals.
As a starting point, it is important to calculate your net worth - it’s the difference between what you own and what you owe. Your net worth represents where you’re financially at that moment, and it is normal for the figure to fluctuate over time. Calculating your net worth one time can be helpful, but the real value comes from making this calculation on a regular basis.
Track and Manage Expenses
Tracking your expenses will act as a basis for nurturing other financial habits. Often, we lose sight of our spending simply because we fail to track the money going out every single day. To avoid over-spending simply setup a spreadsheet or just buy a small notepad that you can write in every single day. You can then categorize your expenses and prioritize on your future spending.
As people advance in their careers and earn higher salaries, there tends to be a corresponding increase in spending, a phenomenon known as lifestyle inflation. One of the main reasons people allow lifestyle inflation to sabotage their finances is their desire to keep up with the Joneses. The consequent term “Urban-Broke” also recently buzzed social media, highlighting the cons of splurging under peer pressure. Thereby, managing your expenses rationally can help you avoid this unnecessary expenditure and its consequent debt.
Set clear Financial Goals
One of the best ways that you can improve your finances is to set clearly-defined financial goals. Your goals can’t simply be to have or make more money; they have to be real and measurable.
Your long-term financial goals should be your ideal big-picture. Once you have the long-term goals defined, go about setting the short term ones as well. When you set a year long financial goal, the milestones are what make up the gaps in the year. For example, if you’re looking to pay off Rs 1,00,000 of debt within 12 months, you could break that down into monthly and weekly milestones.