Something most rags-to riches stories have in common is that at some point a good budget is needed to help achieve long term security. If you want to significantly improve your credit, your net worth, and your sense of financial stability, you have to learn how to control your spending and increase your savings.
# 1 – Keep Detailed Records
Most people don’t have a nature where they want to keep track of every little expense.
People usually rely on the online banking records to calculate their expenses. This is quite effective when it comes to having an overview, but it doesn’t help you keep an eye on bad expenses and avoidable spending.
Make a folder on your computer, so it can be edited easily, and write down or import everything you spend in an ‘expenses’ file. Keep track of all incoming money on an ‘income file’. Alternatively, consider using an online budgeting tool provided by your financial advisor or one of the multitude of online services that are available. Link your bank account and credit cards to the tool and down load the app, and then remember to view it on a regular basis. Human nature is such that we tend to avoid things that make us feel bad. If your spending is making you feel down, consider facing it head on and being aware of your spending, that will be the first step to making a lasting change.
At a minimum, each month and each year you should check how much of your money went to avoidable, ‘bad’ expenses. Cut down on unnecessary spending and watch your savings grow.
#2 – Predict Large Expenses
It might sound obvious, but you’d be surprised how few people actually plan ahead for the major expenses that tend to arise.
Buying a house or paying rent for life is one of those predictable, large expenses. What about paying for annual tags for your car? Or new tires every couple of years? Having a child (or many) is a predictable expense. If you include a couple of fun vacations, furniture and household improvements, college costs and similar big expenses, you can have a good idea of what kind of money you’ll need to achieve the lifestyle of your dreams.
The number you’ll get may surprise you. That’s a good thing. There is no better medicine for bad spending than to have a realistic and motivational picture of what you want to accomplish in the future to live the life you want.
#3 – Make a ‘Get and Stay Rich’ Plan
Financial planners advise people who wants to become rich to make a realistic plan to achieve that goal.
Long term wealth rarely come to those that simply wait for it. However, that does not necessarily mean that it will take extreme effort to become financially secure.
What’s really needed is diligence and developing good habits. Learning to live within a budget, and starting a consistent savings plan will put you on track in the right direction. Getting over the inertia of opening an account can be a major hurdle. If your employer offers a qualified retirement plan, like a 401k, that would be a great place to start. Begin with a savings rate that is achievable, perhaps 3 or 5% of your salary. Each year, increase your savings rate by 1%. You’ll need to work up to a savings rate of 10-15% of your income over time to be fully on track. If you want to retire wealthy or at a younger age, you’ll need to target that 15% savings rate.
Beyond your savings plan, you may have other opportunities that present themselves in life. You may start and sell a business someday. You may have a idea that can be monetized and create significant wealth. Or you may invest in real estate and use those properties to create additional income in future years. Regardless of how things work over time, if you can develop good spending and savings habits early in life, you will be setting yourself up for long term success!
Remember that no matter how much money you make it can easily be spent on luxurious things you don’t need, and you can end up being strapped again. Being truly rich for life means working for it and keeping on top your financial game!