Working to be financially literate is one of the best things you can do for yourself. To repeat what DPN Ambassador Wade Graham previously shared, being financially fit allows you to plan for the future, make sensible decisions, and achieve whatever financial goals you have. Granted, managing money is not something that was taught in school, so many of us may fall into a trap of mismanaging our funds, leading to a lot of problems. In fact, Yahoo reports that half of Australians lose sleep because of money worries.
To mitigate this, the best thing to do is to change your mindset and think of yourself as the CEO of your own company. After all, a CEO's core duty is to ensure that their companies stay afloat financially year in and year out. They continuously find ways to generate revenue and control costs, and that's what you should be doing with your personal finances as well. Here are some strategies you can try.
Being financially fit allows you to plan for the future and achieve your financial goals.
Focus on padding your savings account
Finance writer Lane Balone recommends focusing on your savings account before looking elsewhere. It doesn't have to be much at the moment — all you would need for the time being is an emergency fund, and ideally, around two or three months worth of wages so you can have a pool to dip into in case of a rainy day. If you harbour debt, you should also prioritise paying that off. Once you get to the point where you have zero or barely any debt, and have considerable savings set aside, the next thing to do is to look into investment options rather than just placing your money into a savings accounts, as interest rates are incredibly low if your money is just in savings.
Any financially literate person or good CEO will tell you how important it is to diversify your portfolio when it comes to investing. But instead of just putting your hard-earned money wherever you feel like it, it's crucial that you're smart in how you diversify or where you invest, as taking on too much risk can spell disaster in the long term. If you're a beginner, you may want to look into mutual funds for low-risk investing, as well as exchange-traded funds (ETFs). A guide to the top Australian ETFs on FXCM details how these investment vehicles are similar to mutual funds, as they also hold a portfolio of securities like stocks, bonds, currencies, commodities and other assets, although they are passively managed. This means you can generate income without using up much of your time to take care of these funds. On the other hand, mutual funds have to be actively managed, and there are restrictions on when and how you can trade your shares.
Another ideal, low-risk investment vehicle is real estate. As opposed to investing in shares where price fluctuates wildly, putting your money in property allows you to have a tangible asset. It also doesn't require day-to-day managing, making it much easier to hold onto. You even have the option to borrow against equity in the property to further expand your portfolio should you wish to do so.
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If you're on the hunt for more low-risk investment options, savings bonds, certificates of deposits, and money market funds are also worth looking into. A good CEO is always on the lookout to make money and invest wisely. They know that if you stagnate or get complacent you can easily start losing your funds through unexpected expenses.
Pay close attention to your cash flow
Real-life CEOs know better than to run their businesses based on their stock prices alone. Instead, they closely monitor the money that moves in and out of the business. On a personal level, you shouldn't worry much about the volatility of the stock market and its short-term impact on your portfolio. It would serve you best to focus on your personal cash flow, which you can directly control. Be sure to keep tabs on your outgoing expenses and carefully determine your needs versus wants. Cut off whatever you're not using, and as mentioned by Bradley Beer in a previous post, look into ways on how to reap more money, including claiming depreciation deductions on your property.
Joyce Swift is a freelance finance writer whose aim is to help more people achieve financial stability. She hopes her articles will provide readers with the tips they need to start managing their money efficiently.
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