How to Manage Your Money Smart: 8 Underrated Tips From Experts
How to Manage Your Money Smart: 8 Underrated Tips From Experts
Income increases and loans multiply. Traveling on vacation is a big hit on your pocket. But someone manages to put it off for a rainy day or a decent pension. To become one of these lucky ones, you don’t need to get a finance education or read mountains of books. Everything is much simpler.
Those struggling to live from paycheck to pay look to those who successfully invest in securities as financial gurus. In fact, everyone can wisely invest their own funds. To do this, you just need to follow a series of specific steps and, most importantly, learn how to behave correctly. In fact, most of the time it is people’s behavior that prevents them from saving money and, by investing in stocks, from earning good income.
The article will be useful for those who dream of learning how to save without making big sacrifices, get rid of loans, start saving money and increase savings.
Remember: you cannot predict the future.
There is no completely safe investment. Everything changes with time. And trying to predict future growth for stocks, based on data that has risen so far, is almost the same as guessing which side of a tossed coin will fall, given that it was heads last time. The above result does not guarantee anything.
But this knowledge shouldn’t paralyze you. If you are investing your money and you want to make a decision with common sense rather than unclear prospects, make a plan. It is not a 200-page treatise that you don’t even have time to reread, but a short list of actions that will fit on a small card.
Answer the question what money means to you.
For many, financial planning seems to take so long that their first reaction is to raise their hand and start begging an expert to tell them what to do. No specialist is capable of giving universal and effective advice.
Each person’s financial situation is unique because the goals are unique. Each time we do not speak of abstract dreams … but of the concrete ideas of each one about a secure pension and a good education for children. And if what brings joy to your neighbor can’t make you happy, then someone else’s financial plan won’t work for you either.
So the first (and most important) question to ask yourself is, “What does money mean to me?” For some, they are synonymous with security or opportunity, for others, the equivalent of freedom. Once you have formulated your unique answer, think about what your real goals are, your time horizons and your level of risk tolerance, and what you are willing to change.
Once you’ve identified your goals, choose the three biggest. And every time you think about investments, ask yourself if they will help you achieve those goals.
Don’t get carried away by your emotions.
Acting like others makes us feel safe. That’s why we buy stocks that are expensive in the hope that they will continue to rise, and we sell stocks when they start to fall out of fear. We can keep the employer’s stock because we’re loyal, or we can sell stock because it’s … fun. This behavior is more like the game. It is exciting, but you yourself would not recommend anyone to play at a casino to save money for the future.
Investing is not fun. They should always be aligned with your goals and principles, and not based on feelings about what will happen. Don’t play with the stock market.
Use the 72 hour trial.
Of course, you can think about where to invest your money when you have it. What if they are not there? The answer is obvious: you need to start spending less. And there is a very easy way to do it! Fortunately for you, in the modern world with its online stores, where you can buy almost anything “in one click”, they have created an excellent tool that allows you to control costs. It’s called a basket.
Let’s be honest: for what you order in online stores, very few items need to be purchased right away. Therefore, make it a rule to leave items in your shopping cart for 72 hours. After looking there three days later, ask yourself: what is more important: these things in the basket or getting closer to achieving the financial goals you set? And without regret, delete what you can do.
This technique works very well, as it allows you, on the one hand, not to immediately say no to purchases and, on the other hand, not to make purchases under the influence of emotions.
Automate good behavior
The easiest way to avoid making stupid financial decisions is to not make them at all. Personal accounts on banks’ websites and mobile applications allow you to automate most of your day-to-day operations.
Instead of forcing yourself to make the same decisions over and over again, automate them so that your good intentions translate into good behavior. You can automate the payment of your contributions to the pension fund or simply to a savings account, but not only. It is best if the car payments are also set up for the payment of mortgages and car loans. The gist of the procedure is that necessary account cancellations without your participation will relieve you of the agonizing desire to postpone payment by spending money on something else.
As you start spending less and saving painlessly, evaluate how profitable your previous investment was.
Use the night test.
Acting as planned will help you get your running costs in order. But previous investments may have been made without regard to your financial goals, under the influence of emotions, or under the influence of acquaintances. Therefore, sooner or later you will have to deal with previous investments.
To do this, imagine that overnight all your investments are returned to you in cash. And ask yourself what type of investment would you make again on the same terms and without losses. All contributions that fail this test must be redirected.
Stick to basic investment rules
1. Pay off loans on time.
2. Try to pay off loans faster; . When the debt disappears, you do not have to pay interest.
3. Distribute the attach ments; The goal of diversification is to combine investments, each of which carries risks of its own. Combinations like these are usually less risky than their components and generate more income.
When you bet on ‘systemic risk’, it means that you are investing in the concept of capitalism in general. It is based on the claim that despite the ups and downs of the market… it continues to grow. Therefore, you must invest in stocks of different companies. Of course, some of them will close, but this will not affect you much, as others will develop and their shares will go up.
Mutual funds, which distribute investments between different companies, are much more profitable than individual stocks. When choosing mutual funds, remember to check your short financial plan.
Be ignorant and lazy.
Those who read too much financial news that encourages buying, selling or other similar gambling activities are making a big mistake. Remember, you cannot predict the future.
The experts can’t either, but they make predictions, since that’s their job. So ignore the financial news. Pay attention only to what can affect the achievement of your goals and what you can control.
Someone will say: “But what about the ‘black swans’? If people paid attention to details in time, they could avoid serious crises! These objections have been answered by economists from the universities of Oxford and New York. In the course of a 2010 study, they concluded that hardly anyone listens to experts who correctly predict the most unexpected events.
A quick guide to action.
Putting arguments and reasoning aside, you get the following list of recommendations for those who want to learn how to properly manage their money.
1. Do not try to predict the future, it is impossible. And an attempt to invest, based on the analysis of past events, gambling, has nothing to do with investing.
2. Determine what money means to you and set your financial goals with this in mind. Make a simple plan and make sure your investment is subordinate to it.
3. Do not act under the influence of strong emotions. Investing wisely is boring and should always be. Don’t bet on the market.
4. Use the 72-hour trial. Purchase any item of your choice, other than essential items, after three days. This will help avoid impulsive spending.
5. Automate good behavior. This is the best way to maintain it.
6. Use an overnight test. If all your investment returns to you in cash, what investment will you repeat? Money that has been invested without success can be invested in another way.
7. Rely on basic investment rules: pay off loans on time, try to pay off loans ahead of schedule, invest in different assets.
8. Be ignorant and lazy. The flow of information pushes you to act impulsively, which is always bad for an investment. If your money is already working, why bother?