In continuation of our previous post on money management, developing these two habits can greatly improve your finances. The sum of all four is indeed greater than the parts. Deciding to take control of your finances is the first step, applying these tips for each habit will have you well on your way to financial independence. Being good with money is more about managing your money effectively than just making ends meet.
Saving
1. Pay yourself first
The earlier you save, the earlier you start accumulating interest. Developing this habit will arm you with the discipline needed when it comes to managing your funds. Try to put aside 10%-15% of your earnings as a reward for your hard work religiously and you can avoid having to live paycheck to paycheck.
2. Have an emergency fund
Life happens. Having money to take care of unexpected expenses will leave you feeling a bit more secure when it does. An emergency fund is a necessity. It prevents you from having to borrow or take out loans you’d probably have to pay back with interest. You never know when it’ll be needed. It’s best to be prepared for such situations.
3. Create a retirement fund
No one wants to work forever. As a matter of fact, our bodies at some point won’t allow us to do activities we find seemingly easy now when we get older. A retirement fund simply protects you from having to depend on family members when you’re older. Building a retirement fund early can also speed up the process to early retirement.
Investing
1. Know your “why”
Knowing why you’re choosing to invest will mold the decisions you’d need to make when investing. Your investment goals must be aligned with a purpose to avoid making choices that will affect your investment negatively. You should always know why you’re choosing to invest and understand what instruments can best help achieve your goal.
2. Diversify
This is one of the golden rules of investing. By diversifying your investments you’re not only protecting your interest, but you’re also reducing the dependence of your returns on market fluctuations. Diversifying also allows you to spread risks on your portfolio to prevent major losses on your principal and interest.
3. Invest now for the long run
Long term investments inadvertently grow your money exponentially. Your investment becomes privy to the power of compound interest which basically has you earning interest on your interest. Once you’ve acquired your dividend re-investing your earnings and repeating the cycle guarantees your money working for you.