Financial Stability and Growth
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Bring your desires down to your present means. Increase them only when your increased means permit.
Aristotle / philosopher, scientist, writer / 384–322 BC
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Determine what you love, and do it. Money often equates to power today. Although it’s not the most important thing in life by any means, it is a useful tool that can ease burdens and create opportunities. If you find yourself with a great deal of money, then your challenges typically include discovering something meaningful to do with your time while retaining sufficient funds to live as desired. For one who doesn’t have such financial wealth, then his or her primary focus may tend to gravitate toward earning a decent income without great hardship or sacrifice. If you find yourself in the latter situation, then the optimal approach is to pursue a noble line of work that is of great interest to you. Ideally, it would be a field where you have some natural talent on which to build, as that would likely increase your confidence and allow you to excel more quickly.
Those most happy in life are often the people who do what they love. In fact, such satisfaction is often far more important than money, assuming one has sufficient wealth in which to live. Focusing on a noble line of work, one in which you are helping others directly or indirectly, will also lend to your happiness and cause you to attract other benefits in your life. If you find yourself unemployed, struggling to get by, or in an uninspiring line of work, then it’s a good time to take action. If possible, find meaning in what you do to spark passion and motivation; otherwise, do some research online, at a local library, or through speaking with others, and find a field of interest in which you can excel. Then define your goals and associated actions, and go for it. It may take serious effort, focus, and persistence, but if you enjoy it, then it’s worth it. Given the plethora of opportunities that currently exist in the world, you can find a noble way to capitalize on most any type of effort.
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Live within your means. No matter what your net worth may be currently or how much money you make, a key to financial success and stability is to live within your means or, to put it another way, to spend less than you earn. Such an approach will alleviate financial burden, and it will also give you the ability to save in order to build on what you have financially and to help prepare for the future. Take a hard look at the things on which you spend money, and determine what’s truly essential. Perhaps certain expenses can be reduced or replaced by more affordable alternatives. For example, are you buying name brands as opposed to generics that may suffice in certain situations? Are you spending money on things you don’t use or don’t really need? Could such expenses be eliminated altogether? It’s important to treat yourself well and to enjoy life, but if you fail to save, then you will likely impose limitations on your future success or create financial burdens that serve as distractions. Also, happiness can often be attained through satisfaction with less. If you curb your desires, then you will discover that there is less to worry about in life, and as a result, you will find that peace and joy are more likely to arise.
Maintain orderly finances. A helpful exercise in financial planning is to draw up a budget. It can be quite difficult to live by a strict budget given the unforeseen expenses in life, not to mention the need for fun and spontaneity; however, it’s often valuable to create a budget in order to identify both your income and your spending. A simple approach is to select a period of time, such as a month or a year, and list your monthly sources of income followed by your expenses. This exercise can help you to determine how much money to maintain in cash or liquid form, what expenses can be curbed or eliminated, and how much you need to save in order to prepare for the future or reach your financial goals. Another useful practice is to organize your financial records and receipts, label them accordingly, and retain them for several years in case they’re needed for future review. Taking a little time to organize your records regularly can save you a great deal of time, money, and frustration over the years.
Another sound financial decision is to refrain from carrying any debt on a credit card. A credit card can be a useful tool, but if used improperly, then it can cause great harm to your financial status. Most credit cards have an extremely high rate of interest. So much so that paying off the minimum amount on a credit card debt often fails to decrease the amount owed. Even the most competitive cards have high rates, and carrying debt in this manner is a waste of your money. If at all possible, do not carry debt on a credit card, but if you happen to have debt on a credit card that’s too large to pay off, then take out a short-term loan from a reputable institution to pay off the credit card debt. You will get a much lower interest rate and take an important step toward financial stability.
Save early, and save often. Modern living can be expensive, and tending to costs while trying to get the most out of life can make it difficult to save money. That’s why it’s crucial to pay yourself first when paying expenses. If you invest for the future on a regular basis, even a small amount, then that will add up over time. Similarly, time is a great ally when it comes to investing, as interest and appreciation can help your money grow tremendously over the long run; therefore, it’s important to begin saving early for such things as education, family needs, and retirement. One practice that can help in this regard is to put aside a set amount for investment each time you receive money. The more you can save, the better, but when funds are limited, a good guideline to follow is saving 10 percent of your income before taxes. This may sound like a large amount to some, but if your income and net worth are relatively small, then it is even more crucial for you to do this such that you can build your net worth over time.
Diversify, and insure your investments. When investing, diversification will often reduce risk and ensure appreciation over time. In that regard, mutual funds are good vehicles for long-term investment, and money market accounts are useful for short-term investment. These options guard against the risk that typically accompanies the purchase of individual stocks and bonds, as they are in essence a collection of securities, such as stocks or bonds, held by multiple investors and managed by a professional organization. Such offerings can also reduce the costs associated with investment in various types of securities. Be sure to avoid financial services companies that don’t have good reputations as well as funds that have loads, added fees, or high expense ratios. Real estate can be another profitable vehicle for investment, particularly if you retain such holdings for a long period of time. That can be amplified by leveraging money from others, typically in the form of mortgages, assuming you can cover the associated costs. Once again, diversification in your overall portfolio will guard against risk.
As mentioned, frequent investing over time will allow you to build your net worth most effectively. With respect to a mutual fund, this approach is known as dollar-cost averaging. When the price of shares is high, you are purchasing a valued investment, and when the price of shares is low, you get more for your money. This may simply appear be an optimistic way of looking at each situation, but the main point is that you are investing on a regular basis and not trying to “play the market.” A natural tendency is to react to the market, which leads one to buy high and sell low. Dollar-cost averaging allows you to circumvent this common pitfall by purchasing shares on a regular basis, no matter what the price. Because good investments appreciate over time, you are sure to gain. The key is to select quality funds with reputable companies, and monitor the performance of both from year to year to ensure that they remain on track.
Other aspects of financial stability include insurance and estate planning. Wise coverage includes health insurance, home insurance, and automobile insurance at a minimum for you and your family. This can reduce your risk in life and allow you to avoid overwhelming financial expenses that can occur in the event of a tragedy. It’s best to shop around for a provider, as rates and coverage can vary dramatically. In terms of estate planning, creating a will or trust today can save your family legal fees, public trial (probate), excess taxes, and wasted time and effort down the road.
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