The challenge of making wise personal financial decisions becomes stronger than ever. More people declare bankruptcy, and banks tighten their lending policies to discourage those with unstable income and bad credit from borrowing money. But how can you save money in the midst of financial trouble?
Here are practical tips on how to save money while making wise decisions for your current and long-term financial well-being.
Analyse your present financial situation
For the past two months, Abraham was not able to pay 5 out of six credit card bills, his first mortgage, utility bills and his growing student loans. His business is not doing well because the important equipment was down and he has no money to buy a new one. He has a small savings fund which is less than $1000 and over $5,000 in debt. If he wants his business to kick off from the ground, he has to buy the $15,000 equipment.
For Abraham to start planning his personal finances, he needs to write down additional financial information. Aside from his current savings, debts and needs, he has to gather information about the following information:
- All debts. Always refer to your credit file to know if there are some financial obligations you missed to pay. Otherwise, they will keep on growing until fully paid.
- Average monthly income.
- Business-related expenses
- Personal expenses
- Net worth. Income minus monthly expenses.
Look into your personal situation and values
Age, household size, personal values, goals and many other factors influence your daily financial decisions. If you are in your 30s, you may spend differently than those who are way past their retirement age. Your income, circle of friends, social status and relationships and your current lifestyle influence the way you spend and earn money.
Financial needs evolve at each stage in life. Those who get into a relationship and have kids and those who opt to get a divorce have various financial needs that single individuals don’t have. Households with two incomes have different situations compared to a household headed by a single parent. Single individuals who care for both dependent children and their parents can have challenging financial situations as well, depending on their income and needs.
There are also life events that signify changes in one’s finances, such as marriage, divorce, changes in health, children going to college, or children leaving home after graduation. Others include retirement, the death of a spouse, job loss, or career move.
Create coping strategies in times of financial difficulty
Here are some smart financial moves when dealing with real life money issues:
- Debt reduction. You can apply for debt consolidation to reduce the overall cost of your outstanding debts and to simplify monthly repayments. There are many loan options that would allow you to pay off your outstanding debts, such as refinance, home equity loan, personal loans and the like. Or, you can just set a reminder so that you will not miss payment schedules. Do everything in you power to pay as much as you can on debts, especially those that do not charge additional penalty for early payment.
- Reduce spending. The first step is to create a budget; the second step is to follow it. It’s either you reduce some budget items or totally eliminate them so you will be in better control of your finances.
- Put your savings in safe and profit-generating vehicles. Get a good mix of high risk and low risk investments so you can be assured that your money grows overtime.
- Review your insurance coverage. Are you paying for an insurance which you are least likely to use? Compare insurance companies and choose one which will give you the same benefits at a lower price.
- Share your concerns with immediate family members. If you are having a hard time in staying afloat, let your family members know about it. Maintaining an open communication when times are tight may not only allow you to cut back on your spending, but it may prompt the members of your family to help you out—whether by saving money or by getting extra income.
Create a financial action plan
Start with specific financial goals. Use these goals as a road map when spending and saving money and when you are investing and borrowing.
Use your financial resources wisely. For example, when you take out a debt consolidation loan, make sure that you also leave spare cash for your emergency funds. Otherwise, you may have to get a loan again to cover your needs. If your income is not enough, you can get a loan to start a business, or how to make yourself more employable. Sometimes, it’s not enough to learn the best tips on how to save money. You really need to find it out for yourself by following those tips and doing a little bit more of research to finally do it right.