Decisions, decisions and more decisions. Will you ever get our finances right?
Of course, you need to constantly deal with the details: paying bills on time, reconciling bank accounts or getting a late charge waived.
While those things need to be done, you also need to pay attention to your overall financial picture to ensure you are travelling a sound course. There are five basic decisions that determine the course of your financial life. In addition, you must take steps to prepare for a financial emergency (see right-hand box).
Prepare for EmergenciesMaking arrangements to handle financial emergencies will prevent them from adversely affecting your financial goals.
Make sure to have:
1. How you earn a living
We all want to enjoy our work, but within those parameters you can also choose jobs that pay more than others. Your income drives all your other financial decisions, so investigate your options.
If you don’t enjoy your current job, you have even more incentive to implement these suggestions.
2. How you spend
The amount of money left over for saving is a direct result of your lifestyle choices, so learn to live within your means. To get a grip on your spending, analyze your expenditures and set a budget:
3. How you save
You should be saving a minimum of 10 per cent of your gross income. But don’t just rely on that rule of thumb. Calculate how much you need to meet your financial goals and then determine how much you should be saving on an annual basis. If you can’t seem to save that much, go back to your spending analysis and cut your spending.
4. How you invest
The ultimate size of your investment portfolio is basically a function of two factors – how much you save and how much you earn on those savings.
Even small differences in return can significantly impact your investment portfolio. Typically, investments with potentially higher rates of return have more volatility than investments with lower rates of return.
While you don’t want to take on excessive risk, you also don’t want to leave all your savings in investments with little growth potential. Your portfolio should contain a diversified balance of investment categories, based on your return expectations, risk tolerance, and time horizon for investing.
5. How you manage debt
Before you take on debt, think about what affect it will have on your long-term goals. If you are already having trouble finding money to save, how will it get any easier with more debt and interest to pay? To keep your debt in check, make some strict rules:
Making the right choices for these basic financial decisions can help put you and keep you on the right financial course.