Becoming rich doesn’t happen overnight unless you’re fortunate enough to win the lottery or inherit a fortune. To master your money and get rich, you must establish a few smart habits.
Speaking of lotteries, you’ve probably read about past lottery winners who blew all their winnings within a few years because they didn’t understand these personal finance tips.
While a high-paying job can make you a top earner, small things like your money habits make the difference between a life of endless financial stress and prosperity.
This tells you that financial discipline is vital to lasting wealth. Rich people incorporate principles of financial discipline into their day-to-day lives. Managing your finances can be overwhelming at any age.
However, there are no big secrets when it comes to building wealth. You can achieve long-term success by cultivating practical money management strategies.
That’s what this post is all about – enlightening you on the best personal finance tips.
Whatever your financial situation, the personal finance tips below can help you improve your financial standing and enable you to live your best money life.
1. Shift Your Money Mindset
Your beliefs about money can determine whether or not you are ever successful at accumulating wealth.
According to Forbes, you could live paycheck to paycheck because you have a scarcity mindset. You will never achieve financial success if you stay focused on lack and never have enough. Your thoughts dictate your actions.
To shift to a mindset of abundance, a belief that you will always have more than enough, you must focus on the following three things.
- We are setting financial goals and using a budget to obtain those goals.
- Stop spending money emotionally. Many people shop to make themselves feel better or more in control of their lives.
- Replace the negative thoughts in your mind with positive ones. For example, you could replace the idea “I’ll always be broke” with “I have more than enough.”
Creating a positive mindset will give you the confidence and motivation to succeed financially.
2. Learn to Budget
I know, I know budgets are boring; they’re just records on a spreadsheet blah, blah, blah. I’ve heard it all, but what I’m about to tell you might change your perception of budgeting.
Just ask yourself this, if you have no idea how much money you spend monthly, how can you look at planning your future? A budget is the starting point in your journey towards financial independence.
When it comes to personal finance, failing to plan is synonymous with planning to fail.
It would help if you took full control of your finances by creating a realistic budget based on your monthly income and expenses. Having a plan for your money will help you track your spending.
Spending your money without a budget can keep you from reaching your financial goals. You might never get out of debt or stop living paycheck to paycheck.
To avoid this, create a detailed monthly budget. Making a budget is half the job, the other half involves sticking to it religiously.
It makes no sense to spend your time and energy drafting a budget if you lack the discipline to implement it. By monitoring your spending behaviors using a budget, you will avoid habits like impulse buying.
Let us show you how to create your own budget binder with a FREE monthly budget sheet and planner printables. If you have absolutely no idea where or how to begin, there is a book for that. I recommend reading Master Your Money: A Step-By-Step Guide To Creating A Solid Budget!
Do you know how much money you spend on gas every month? You should!
3. Pay Yourself First
It is payday, yay! For most people, payday means going on a shopping spree or a night out with friends. If you are one of these folks, consider paying yourself first before going on a spending spree.
This is a common trait shared by many rich people. But what does paying yourself first even mean? Let me break it down for you in a way you can easily understand.
Most people have a tendency to pay their bills first, then save whatever amount remains. That’s a no-no if you want to enjoy financial independence.
Before you pay your bills, you need to save a portion of your earnings and let them accumulate.
Set aside whatever percentage of your income that you can afford. When you receive your paycheck, go ahead and deposit a specific amount in a separate savings account.
You can check with your bank and see if you can have this process automated to remove the temptation to spend.
To steadily grow your net worth, you’ll need to spend less and save more. Earning more doesn’t necessarily mean higher net worth.
4. Stay Out of Debt
Debt is like a cigarette addiction; once you get into debt, it is hard to get out of it. Of course, there are some “good debts” like a mortgage and student loans, but staying in debt will create even more debt – you don’t want that if you’re going to be rich.
Make it your first order of business to get rid of debt. Staying out of bad debt is probably the most important personal finance tip on this list.
Sadly, we live in a consumer-driven society that makes it very easy to overspend. Control your spending to avoid lifestyle inflation.
When you continue to spend with the same restraint that helped you become rich in the first place, you will preserve your wealth.
Start with paying off high-interest debts and try to avoid new loans as much as possible. Spending on immediate wants can adversely affect your future needs.
You don’t have to buy the latest designer handbag or that fancy pair of shoes just because your colleague has one.
Remember, life is not a competition, and comparison is the thief of joy; don’t live beyond your means. Don’t confuse essential expenses with your desires.
When you pursue things you don’t need, you’ll put yourself on a financial treadmill.
You might go broke trying to impress people that don’t even matter in your life. Instead of spending your hard-earned cash on expensive material objects, try spending on experiences like family get-togethers.
Those who have it all have either spent a considerable amount of time and effort to earn what they have or are buried in debt. Don’t be the latter.
5. Live Below Your Means
A good portion of rich people live below their means. They don’t drive shiny sports cars or wear expensive jewelry.
In the same spirit, you should not be too quick to pull out your wallet just to “fit in.” If you can’t afford it, save some money every month, come up with a new side hustle or get a new job that pays more to buy it.
Simple as that! When you come across a large amount of money, either a pay hike, a bonus or an inheritance, it’s advisable that you continue living like you make less than you earn.
As you will come to realize, living without debt is one of the smartest things you can ever do financially. As Dave Ramsey always says, “Live Like No One Else So You Can Live Like No One Else.”
The point is that if you live in a disciplined way right now, you’ll enjoy incredible advantages later. Using cash instead of a credit card is one way to stay out of debt.
Credit cards are the 21st-century virus. If you have more than one credit card, consider ditching some of them. Most credit card debts are a result of those uh-oh situations.
Start building an emergency fund now so you can avoid using your credit cards in the future.
Open a separate bank account and make regular contributions to it, use this money for car repairs, new appliances, or any other unforeseen emergencies.
You must also become a conscious spender by analyzing your spending patterns and avoiding splurging on unnecessary items.
6. Invest Wisely
After controlling your expenses and saving a substantial amount of your income, it’s now time to put the money to work.
With the right systems in place, you can save and invest in a bright future. Starting out can be scary, but to be rich, you must step out of your comfort zone and make things happen.
There are several resources that can help you get started. The trick is to start making smart investments as early as possible so that can you can see your money grow.
Not next month, next year, or after a pay hike. Now! As the popular Chinese proverb goes, the best time to plant a tree was 20 years ago. The second best time is now. Investing is all about taking calculated financial risks.
If you dream it, you can achieve it. You can invest a percentage of your pay in bonds, an exchange-traded fund (ETFs), stocks and mutual funds.
I invest a percentage of my income in index funds. If you are patient, you can invest in things that appreciate in value with time.
These can be things like baseball cards, artwork, or real estate. Find out why real estate is my preferred way to invest.
You don’t have to be a financial guru to invest – there are wealth advisors and financial planners for that.
If you decide to hire someone to help you with your investments, be sure to hire a fiduciary, they are the only ones who are required by law to put your best interest first.
Some financial advisors make money by convincing you to invest in certain funds, you don’t want that, you want an advisor that puts your financial gain ahead of their own, so make sure your financial advisor is a fiduciary.
Re-evaluate your goals every month to stay on track.
7. Net Worth
Net worth is the value of everything you own (your assets), minus the money you owe ( your liabilities). Why is net worth important?
The amount of money in your checking and savings account isn’t the only indicator of your financial health. Your net worth shows you the big picture of your wealth.
You may only have $1,000 in your savings account, but your net worth might be $300,000, so it’s important to look at the big picture.
I monitor my net worth monthly with the Personal Capital app.
According to The Simple Dollar, the Personal Capital app is one of the best personal finance tools for 2018. Simply link your financial accounts to the app, and it will automatically keep track of your net worth.
The app allows me to simply log in and see all of my financial information quickly and easily in one place; my checking, savings, mortgages, stocks, vehicles, and rental properties.
How To Calculate Your Net Worth
I will show you how to calculate your net worth on your own. Of course, you can use an app or net worth calculator to find your net worth quickly.
But to truly understand your finances and get the most out of the information, you need to know how to calculate your net worth yourself.
You can download a FREE net worth tracker here and fill in your numbers as we go through the steps to calculate your net worth.
Step 1: Calculate Your Total Current Assets
List the current balances of all your assets, this includes:
- Retirement account
- Stocks or Bonds
To find the current value of your house (the price you would sell it for today) use Zillow or a similar site to determine its current value.
If you recently purchased your house, you could list the purchase price as its current value.
To determine the value of your car, go to Kelly Blue Books website and enter your information. Don’t be too concerned about getting an exact dollar amount, you just want to be in the ballpark.
Do you include 401k in net worth? Yes, list the current value of your 401k. Even though this money is taxable when you draw it out, you still list the current value of your 401k.
Now that you have all the dollar amounts from your assets, you can list them on the net worth tracker sheet under assets.
If you didn’t print it out, just list all your assets in a column on one side of your paper. Once you have everything listed, add it all up and put the amount under “total current assets.”
Step 2: Calculate Your Total Liabilities
Now, you need to list all of your debt (the amount you owe) this includes:
- Car Loans
- Student Loans
- Personal Loans
- Home Mortgages
- Large Medical Bills
- Credit Card Balances
List each of your debts under the liabilities column with the dollar amount that you owe for each one. Make sure that you list the total amount that you owe and not your monthly payment.
If you still owe $10,000 on your car and your monthly payment is $600, you write $10,000 for your car. Add up everything and list it under total liabilities.
Step 3: Calculate Your Net Worth
Now just subtract your total debt from your total assets to get your net worth.
Example of How To Calculate Your Net Worth
For this example, we’ll assume that Mike and Amanda are a married couple in their forties.
The following is a list of things that this couple owns as well as the debt that they have.
- House– According To Zillow, their house is currently worth $1000,000, and they owe $60,000 on their home mortgage.
- Car-Kelly Blue Book values the car at 30,000, and $27,000 is still owed on the car.
- Truck-The truck is paid off, and its current value is $10,000.
- Credit Cards-With three credit cards between them, they owe $5,000 on the cards combined.
- Student Loans-Mike still owes $3,000 on school loans.
- 401k– Mike’s 401K is valued at $30,000.
- 401k– Amanda has her own 401k, and the current balance is $15,000.
- Savings– Mike and Amanda have a joint savings account with a balance of $2,000.
- Property– Amanda inherited 5 acres of property valued at $2,500.
- Medical Bills– Due to a minor accident, this couple owes $4,000 in medical bills.
Download a net worth tracker like the one above to track your net worth.
Insurance isn’t anything that people like to think about, but it’s a necessary part of wealth building. If something happens to you or your spouse, you need to have a plan to cover the lost income.
Don’t risk your family losing everything because you didn’t plan. There are many options when it comes to insurance, so do your homework before choosing a plan.
If you need help getting started, consider an online brokerage site like Policygenius. Life insurance can protect your family from financial disaster.
9. Estate Planning
When you are young and healthy, estate planning is probably the last thing on your mind, but it’s an important part of your financial plan.
Having a will ensures that your family gets more money and gets it faster. Taxes and expenses can also be lessened by having an estate plan.
Your plan should include a will or trust, durable power of attorney, beneficiary designations, letter of intent, healthcare power of attorney, and guardianship designations.
The earlier you can start planning for your retirement, the better. When your putting your budget together, be sure to include retirement planning.
The amount you need to invest will depend on your retirement goals and your age. Decide whether you’ll invest in a 401k or Roth IRA. The investment choices you make now will impact the taxes that you pay during retirement.
11. Supplement Your Income
No rich person has a single source of income; the average millionaire has 7 streams of income. Your full-time job may not always be there, and economic changes can affect your income and expenses.
Life can be unpredictable at times; you have no control over that. Instead of living from paycheck to paycheck, spread your risks to have multiple sources of income.
Diversify your income streams by having a side hustle, buying things to sell to make money, or working a second part-time job. Ensure you’re getting paid what you’re worth, always negotiate your salary.
There are limitless opportunities out there, so try to pursue a passion, skill or hobby that fulfills you. It can be a small business, renting out a property or tutoring online.
With half of Americans being concerned about their current financial well-being, now is the best time to secure your future by supplementing your budget.
12. Financial Education
If you want to be rich, you have to think and act like a rich person. When you know better, you do better. Many wealthy people were not always rich; they started from the bottom and worked their way up.
They chose to learn and grow continually. When they face challenges, they seek personal finance advice from experts. Most of them are more than glad to share the advice they’d give to their younger selves to inspire others.
Find a money mentor to learn and explore new ideas. Your network is your net worth who you surround yourself with matters more than you think.
Your net worth mirrors that of your circle. Keep a small circle of like-minded individuals to catapult your income and expand your thinking.
You can also get personal finance tips from personal finance podcasts, YouTube videos, finance books and magazines, online courses, workshops, and one-on-one discussions.
Financial literacy will help you put your knowledge into practice. The more financial wisdom you gain, the more you’re likely to earn, save and invest.
Personal Finance Tips (FAQ)
What Is The 50 30 20 Finance Rule?
The 50 30 20 finance rule is a simple way to budget your income and make sure you’re saving enough money each month. The rule is based on the percentage of your income that you should be spending on different expenses: 50% on necessities, 30% on wants, and 20% on savings and debt repayment. This rule can help ensure you’re not overspending on non-essential items and putting enough money aside for savings and debt repayments.
To use the 50 30 20 finance rule, calculate your after-tax income and divide it into three categories: necessities (50%), wants (30%), and savings/debt repayment (20%). Then, ensure you only spend within your allocated percentages for each category. This personal finance rule is a great way to help you stay on track with your budgeting goals.
What Are The 5 Most Important Aspects of Personal Finance?
Personal finance is the process of planning and managing your money to achieve your financial goals. While there are many different aspects to personal finance, here are five of the most important:
- Savings: It’s important to set aside money in case of an emergency or for future purchases. You can save money by setting aside a fixed amount each month or putting away any extra money you have left after paying your bills.
- Investing: Investing allows you to grow your money while taking advantage of potential tax breaks. You can invest in various things, such as stocks, mutual funds, and real estate.
- Financial protection: Insurance can help protect you financially if you experience an unexpected event, such as a car accident or a medical emergency. There are many different types of insurance, so it’s important to understand what coverage you need.
- Tax planning: Taxes can greatly impact your finances. It’s important to understand the tax implications of your financial decisions to minimize your tax bill.
- Retirement planning: Retirement planning is important for ensuring you have enough money to support yourself during retirement. There are many different factors to consider when planning for retirement, such as how much money you’ll need and when you want to retire.
What Are The 5 Steps To Achieving Personal Finance?
Personal finance is the process of planning and managing your money to achieve your financial goals. While there are many different ways to approach personal finance, five key steps can help you get on the right track.
The first step is to assess your current financial situation. This means looking closely at your income, expenses, debts, and savings. This will give you a better understanding of where you are currently and what changes you need to make to reach your financial goals.
The second step is to develop a budget. This will help track your spending and ensure you live within your means. It is important to remember that a budget is not meant to be restrictive; rather, it should give you a clear guide for allocating your resources.
The third step is to create a savings plan. This will help you set aside money each month to build up your emergency fund and reach your long-term financial goals. A good savings plan should include both short-term and long-term goals to stay on track.
The fourth step is to Invest Your Money wisely. This means choosing investments that fit your risk tolerance and time horizon. It is important to remember that there is no one perfect investment but rather a mix of different investments that can meet your needs.
The fifth and final step is to review your progress regularly. This will help you track your progress and make adjustments as needed. It is important to remember that personal finance is an ongoing process, so don’t be discouraged if you don’t see immediate results. Just keep working towards your goals, and you will eventually achieve success.
What Is The 20 10 Rule in Personal Finance?
The 20/10 rule is a simple guideline that can help you get your debt payments under control. The rule says that your consumer debt payments should take up no more than 20% of your annual take-home pay and 10% of your monthly take-home pay. This rule can be a useful tool for evaluating your current debt situation and setting achievable goals for the future.
If you currently carry a balance on your credit cards or other loans that exceeds these limits, you may want to consider making some changes to get your debt payments under control. Of course, the 20/10 rule is not the only factor to consider when managing your debt. But it can be a helpful starting point for getting your finances on track.
So, there you have it! Twelve personal finance tips to help get your money in check. These simple steps will make a big impact over time if you stick with them. Start small and work up until you’re comfortable with these guidelines.
And most importantly, remember to have fun with it! Money doesn’t need to be stressful – by implementing some of these personal finance tips, you can take control of your finances and start enjoying life a little more. What are you waiting for? Get started today!