By Laurent Dionisio
Let me give you to seven ways to upgrade your financial life.
Tip 1 – Be Financially Literate
Financial education is key to prosperity. Learn practical tips on money management, debt-management, saving and investing by continuously educating yourself. The Internet is a rich resource for self-improvement. You can also attend a FREE Financial Planning and Coaching Seminar to help you get started and to create your personal financial plan/blueprint.
Tip 2 – Minimize or Eliminate Debts
“Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” –Ogden Nash
If you can, try not to get consumer loans or accumulate debts for non-essentials, like vacations, gadgets and flashy appliances. It is a burden both for your financial and personal life. It imposes you some hefty cost of capital or interest which is a burden for you. Use the power of compound interest in your favor and not the other way around.
Do you have Credit card loans? Home loans? Car loans? Rule of thumb is make sure that your total amortization is within the 30% threshold of your total income.
Tip 3 – Develop Debt Elimination Plan
Given that you have current debts and loans, you must develop a plan how to eliminate them. There are actually ways to eliminate debts but the two basic strategies I know is by eliminating them by interest rates or outstanding balance. For the former procedure, list down your debts per interest rates from highest to smallest, then put your extra cash on the first loan with the highest interest rate first after after paying the minimum for all of the loans, thus, prioritizing to eliminate the loans with the higher interest rates while building momentum.
Same procedure with the latter method of elimination, you just prioritize according to loan outstanding balance. Do not forget to celebrate small wins!
Tip 4 – Make your Own Budget Plan
In your income statement, you can construct your own budget plan. Get your average yearly and monthly income and your corresponding expenses. Classify your expenses from dispensable and indispensable or some would classify it as needs or wants. Dispensable expenses are charges that sometimes are just wants like dining out, cable and internet fees, movies or travel expenses.
On the other hand, indispensable expenses are those expenditures that we cannot live without like food allowances and water/electricity dues. Of course, classifications are unique for each of us depending in our lifestyle and judgment.
Shall we make a budget? I think we should. Its vital role is to control our cash inflows and outflows. It also gives us some sense of control over our financial life. Moreover, it will also make us aware and responsible on our expenses and income especially those that are dispensable. It is basically an overview of our financial standing.
Tip 5 – Improve your Budget Plan
After laying down your current budget, you now have the whole picture of your cash flows. You may now tweak some of it and get your desired savings or expenses ratio. You need to see your expenses for you to check the leaks that drain your financial bucket. You need to put some stop on it before it is too late. On the other hand, you can also see if you are saving enough for your financial goals.
Do you allocate more for your entertainment expenses likes for movies, dining in a restaurant or your travel expenses? This could be hard but changing some of your bad spending habits could really benefit your financial standing in the long run.
Tip 6 – Make your Own Financial Statements
It is very important to know your financial standing. For you to achieve your financial goals, you need to know where you stand now, financially. Knowing where you will start will help you lay down your financial plans and strategies. Personally, I created my balance sheet, income and cash flow statement. I update them monthly so that I can track if I am making a progress or not. Then I assess if should I adjust my financial strategies and plans.
Do I have enough liquid assets to cover my current debts (Current ratio)? Are my assets mostly funded by debts or equity (Debt to equity ratio)? Do I have unnecessary expenses that I can eliminate to increase income? What is percentage of discretionary expenses to my total expenses? What percentage of amortization expense compared to my total income?
These are some of the vital information you need to know your financial status and health. So I advise that you make time to prepare your own financial statements so that you will have a blueprint of your current financial standing.
Tip 7 – Start Saving and Investing
When you follow the given steps above, I am sure that your will finances will improve and eventually create excess cash. So the best thing to do is not to spend it again but rather save and invest and make your money work you instead working your ass off just to pay all of your debts.
How? Start to live simply, increase your income, learn and invest in yourself and start saving and invest your money. Believe me, when you start saving or investing, you will have this sense of pride and accomplishment.
But remember, financial education is key to prosperity. You can attend a FREE Financial Planning and Coaching Seminar to start your journey to financial freedom.
Congratulations! You are on your way towards your financial goals!
Laurent Dionisio, CPA, RFP©
Laurent Dionisio is Owner & Publisher of PinoyFinancialPlanning.com, A Certified Public Accountant, a Registered Financial Planner, currently taking up Master in Business Administration, and the continuing professional experience and education through attending seminars, conferences and reading books and everything about finance make him knowledgeable and competent in this field.