Let’s Talk About Wealth And How You Can Increase Yours
Creating a plan for your personal finances can help you get better outcomes, regardless of your current financial situation. Your financial plan should address your monthly expenses, managing your debt, and funding a savings account. Use these tips to improve your personal finances.
Why Expenses Are So Important
The best way to increase your wealth is to reduce your expenses, because controlling your expenses provides funds to manage your debt payments and to invest. You can make your salary go much further, if you think carefully about your current spending.
As we’ve discussed in the past, the best place to start is to create a monthly budget. Once you have an idea of how much money you need for your fixed costs (car payments, home mortgage or lease, insurance premiums), you’ll know how much income you have for discretionary spending (food, clothing, entertainment).
If you budget doesn’t leave dollars left over for savings, you should aim to reduce your expenses. Think creatively when it comes to your expenditures, and take a look at every spending category. Start with your discretionary spending, because those are variable expenses that you can cut. Try eating out less, or cut back on buying coffee at Starbucks. Ask your insurance agent to review your coverage, to determine if you can reduce your premium payments.
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With some effort, you can reduce your total spending and free up dollars to save and invest.
The Danger of Debt
If you don’t manage your debt properly, it will have a damaging impact on your personal finances. You’ll pay far more interest on loans that is necessary, and you may incur additional fees and penalties. If you don’t make debt payments on time, your credit rating will suffer, which makes it more difficult and expensive to borrow money in the future.
Think about your money in the same way that a business thinks about its finances – you can maximize your profits by reducing your costs. And one of the biggest costs that people face in life is debt. Much like your gas bill or mortgage payments, debt payments become a monthly occurrence that slowly drains your bank account. However, for many of us, borrowing money is unavoidable; you probably needed a loan for college or your first house.
That being said, there are ways to make your debt repayments more manageable. You could check out studentloansconsolidation.co for programs that will help you to consolidate your student loans into manageable payments. You can’t increase your wealth until you get your debt under control.
The Magic of Investing
Investing consistently can generate a large amount wealth over time, because of the magic of compounding interest. Compounding interest refers to earning “interest on interest” by reinvesting your interest and dividend payments. If you reinvest your earnings, you’ll earn far more money over time. The sacrifices you make to cut your expenses and invest can pay off, if you compounding your earnings.
Investing your money is the best way to create wealth over time, as explained over at nytimes.com. Rather than leaving your earnings in your bank account to slowly gather interest, you should withdraw some of your money and seek opportunities to compound your earnings at a higher rate of return.
If you understand the real estate business, you might buy properties, renovate them, and upsell the property at a gain. You can also research and invest in a diverisified portfolio of stocks and bonds. As stated over at barbarafriedbergpersonalfinance.com, increasing your wealth may involve taking risks.
This is for educational purposes only.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
(email) ken@stltest.net
(website and blog) https://www.accountingaccidentally.com/
(you tube channel) kenboydstl
Image: Bullseye, Jeff Turner CC by 2.