How do people become financially successful? And what separates the financially successful from the personal finance failures?
If you take a look at your successful family and friends, do you wonder what led them to their success? A lot goes into the household finances in addition to just paying bills.
Read on for simple but powerful tricks that will help you catapult your finances from floundering to freakin’ fabulous.
How to Be Financially Successful
Truth be told, if you’re willing to take the time to read and implement these tips, you will change your finances for the better.
Hint: Don’t pass by the seemingly simple ones; these are the ones that make the biggest difference between “rich” and “poor”.
1. Making and Using A Budget is Key
When it comes to keeping track of the money not only coming in, but going out, a budget is a great way to allocate funds to each area.
Personal finance experts call it “giving each dollar a job”.
When you fail to budget, or to give each dollar coming in a job, your money easily slips away into the black hole of spending.
Big box store sprees, fast food runs and happy hour splurges will make your cash disappear faster than you can say “broke”.
The same goes for not budgeting necessary expenses such as monthly bills, food, and gas. Yes, you have to spend on these items. But how much you spend makes a difference.
Spending money has to be budgeted for as well. Put a designated amount into your budget for miscellaneous, unplanned expenses. Then, when it’s gone, your unplanned spending is done for the month – unless you can find another category to take the money from, such as your grocery bill.
Reducing unnecessary expenses will be key in freeing up extra money each month, so try and add up what you could have avoided that month, the total will probably shock you.
Track Your Expenditures
Part B of your budget plan is to track what you actually spend each month and compare it to your budget. You can do this automatically using a free online tool such as Personal Capital.
Or you can track manually with a Google or Excel spreadsheet. Believe me when I say that tracking your monthly spending will help you get a serious handle on financial waste.
I used a budget for years with little to no success. Why? Because although I was “budgeting” certain amounts for fluid expenses like groceries, I wasn’t actually sticking to my budgeted amounts.
Spend tracking (writing down all expenditures for the month) revealed my mishaps. For instance, my $600 a month grocery budget was actually $900 per month in grocery expenditures.
My $150 a month gas budget for my car was actually $250 in expenditures. And it wasn’t that I needed to budget more money in these categories–I just needed to be more mindful of how I spent.
I’m convinced these little expenditures are why people fail so heavily at money management. Once I started spend tracking, I could see where these “little” extras were adding up to LOTS of spent money.
As such, spend tracking helped me see in real time where I was headed toward budget overages. Then I could correct my course and get back on track before I was way off budget.
2. Save More for Retirement
Sure, retirement may feel like forever away, and in reality, it might be decades away. But that doesn’t mean you should put off saving until later.
The earlier you can start the better, taking advantage of compound interest early on. If your work offers company matching contributions, that is where you want to make sure you are contributing the maximum that is matched.
I mean, why turn down free money? Let your company help you save more. From there, if you are able to increase contributions each year until you max out 401(k) limits, you will be in great shape.
Employer sponsored retirement plans are a solid way to save more for retirement. If you can sock away the maximum for IRA ($6,000 for 2019, $7,000 for people 50 and older), you’re doing yourself an even bigger favor.
The point is to utilize the free money you have available for retirement savings and then inch your way into saving more for retirement each and every year.
It may seem like a sacrifice at the beginning, but as the years pass and you get closer to retirement, you’ll be so thankful you disciplined yourself in retirement savings when you were younger.
3. Get and Stay Out of Credit Card Debt
Speaking of being in great financial shape, you should know that credit card debt is the nemesis of financial security.
If you are not able to pay the full statement balance by the due date, you will begin paying interest until that amount is paid off. Depending on the balance and the APR on the card, this could add up to hundreds of dollars a month you’re paying to banks.
Don’t give your money to banks; keep it for yourself! If you’re going to use credit cards, be sure to pay them in full every single month. Then take the money you would’ve been paying in interest and do the next step with it.
401k and IRA accounts are great. However, it’s important to have some non-retirement investment accounts as well.
There are lots of options for investing outside of your retirement investments. You can:
- Invest in crowdfunded real estate
- Try investing in peer-to-peer lending
- Invest in a business such as building a collection of money making websites
- Use self-directed stock accounts to invest in blue chip stocks
There are lots of options, and if you’re nervous about stocks you can try investments that are outside of the stock market.
Most retirement investment accounts will apply a penalty if you withdraw early, therefore non-retirement investing is a great way to build wealth you can have access to if you need or want it.
And, it’s a great way to amass wealth you can use to retire early.
5. Automate Your Savings and Investments
When your paycheck is direct deposited into your account and you see that balance for your available cash, it can tempt you to spend without forethought.
Don’t let that happen to you. Instead, treat your savings and investments like a bill. Make them due and payable as soon as you get your paycheck.
Otherwise, it’s easy to convince yourself you’ll save and invest “if” you have money leftover.
And guess what: you won’t have money left over. It’s human nature to spend it if we have it. However, if you treat your savings and investing like a bill by automating it, it’ll be gone before you know you had it.
6. Live Within Your Means
It’s really easy in today’s world to be tempted to keep up with your family, friends and neighbors.
The people around you might seem like they have it all, but do they? Or are they struggling with boatloads of debt to keep up that appearance?
They might have a substantially higher income than you as well, which accounts for their hefty spending.
Your job is to manage your money in a way that’s best for you and your family. Don’t worry about what others think of you and your stuff.
Instead figure out your true priorities and make a money plan that helps you achieve those priorities. Make a commitment to:
- Never spend more than you earn
- Save and invest in line with your monetary goals
- Only purchase items that truly matter to you
You may not have all of the “stuff” in the world if you choose to live within your means, but you will be much happier – and much more financially secure. And that peace of mind isn’t worth giving up for material items.
7. Build an Emergency Fund
I don’t care who you are; you need an emergency fund. Why? Because life is unpredictable. The company you work for might close its doors.
Your business could fail. The stock market could crash. You could have a need to take a six-month sabbatical. Or you might want to stay home when that new baby arrives.
Don’t leave yourself unable to fulfill your needs or wants because you don’t have a savings cushion set aside. Work to build 3-to-6 months’ worth of expenses in an emergency fund – and leave it there unless you really need it.
8. Gain More Income
Another trick that will help you become financially successful is to gain more income. You can do that in one of several ways:
- Ask for more hours at work
- Get a second job
- Start freelancing with a skill you have
- Start making money with your hobbies
- Get a higher paying job
- Sell your stuff you don’t need
There’s always a way to make more money. Side hustles abound everywhere. Find one and use it to increase the income you can save and invest.
Despite what you may think, you really can be financially successful. Yes, it’s going to take work and sacrifice on your part. But everything worth having usually does.