4 Key Steps to Attain Financial Security

Tuesday, June 4, 2019, 6:00 AM | Leave Comment

Do you sometimes find yourself thinking about the events that took place in your life in the last five years? Maybe 10 years? Or even 15 years?

Based on your old school journal, after five years of working, you’re supposed to have saved your first 50K or a hundred thousand dollars. After 10 years, you would have had a couple of investments and perhaps even your own small business. You never really got to plan for 15 years after, though.

Whatever happened to all those plans and dreams?

You’ve been work­­­­ing for so long, and yet have so little to show for it. As a matter of fact, you’ve got nothing to show in terms of savings. What you do have, right now, is a loan you’re still paying up, a few personal debts, and a credit card you’ve been trying to rid yourself of for years.

Now, what do you do when you’re all done paying off your loan? What can you do now to gradually attain a modicum of financial stability, and even start saving?

Here are four key steps you can take to get on the path to true financial security.

  1. Establish a weekly or monthly budget and adhere to it.

    When it comes to personal finance, a laissez-faire approach just won’t cut it. You can’t claim to be financially stable just because you are making it from paycheck to paycheck.

    No matter how big or small your monthly income is, take time to sit down and make notes about your weekly or monthly expenditure. How much do you spend, on average, on utility bills, credit card and loan payments, groceries and other supplies, fuel and vehicle maintenance, and rent?

    Deduct the sum of all the above expenses from your monthly salary. What you have left, whether it’s a few dollars or a couple of hundreds, can be allocated towards paying off your debts and savings.

  2. Compartmentalize your savings and startup emergency fund – literally!

    You may think you’re not in a state where you can save a single cent. Think again!

    No matter how small you think your salary is, there are always a few cents or dollars to get you started. It doesn’t matter if you use a penny can or a piggy bank and a jar, as long as you start now, today.

    Use the penny can or piggy bank for tossing in spare change (paper money counts, too!), and the jar for your emergency fund. Make it a point to put in something daily, whether in the savings department or for your emergency fund.

    Never consider your savings or emergency fund as part of your spending cash. Do this without fail, and don’t use what you save for anything trivial or unnecessary. Just keep dropping in what you can afford and, perhaps, in a few months, you’ll be surprised to know you’re ready to open a savings account and an emergency fund account.

  3. Strive to lead a frugal lifestyle.

    To stay afloat even during difficult times, it is no longer sufficient to simply live within your means. After all, doing so essentially means spending what you earn. While this will ensure you live a debt-free life, it also implies a lack of savings.

    Some financial advisors recommend using the envelope approach or system of budgeting to ensure you stay within or even below budget. What you can do is to probably start weekly.

    For example, you can have three envelopes designated for food (supplies and/or eating out), groceries and gas. Allocate a fixed sum for each item and observe your weekly spending pattern; see where you can save the most. It doesn’t matter if it’s a few cents or a couple of dollars. That’s a start and should go directly into your emergency fund jar.

    There are other ways by which you can live mindfully and sensibly:

    • If you live just a few blocks away from your workplace, ditch the vehicle and get a bike or walk to and from work. This way, you get to exercise and save on fuel and car maintenance expenses. If you can’t part with your car, earn extra cash by signing up to be an Uber or Udrive, or eKar.

    • Reduce your entertainment expenses by consciously decreasing your dependence on digital-based leisure such as streaming services or even your cable service. Get out more, take walks around the neighborhood, hike up a hill or read a book in the community park. Start a hobby you can benefit from like container gardening, carpentry or sewing.

    • Instead of eating out daily or a few times a week, create a weekly meal plan and cook most of your food. If you live solo, cook a few batches of different dishes to tide you over for a few days. Make simple but healthy meals. If you don’t know where to start, there’s no shortage of choices and sources available online to help you get started.

  4. Slowly but surely get yourself out of debt.

    If you have been faithfully paying for your loan, whether by auto debit or cash/cheque, then you’re already off to a good start. You will, of course, have to begin paying off your personal debts some time.

    What you can do now is to write them all down, every single IOU, and then set up a schedule.

    Either you start paying off your personal debts per person (for example, pay off what you owe your friend John on month one), or allocate a certain percentage of the amount you can afford to pay per month to each person you owe. This goes without saying that you should have informed or gotten the consent of each of your lenders beforehand.

    Whichever method you employ, you can look forward to being debt-free in a couple of months. Think of how free and happy you will feel when you are finished paying off your loan and your personal debts – there’ll be nothing quite like it.

    As for your credit card, if you are determined to pay it off or substantially reduce what you owe, allocate more than the monthly minimum amount due so you don’t end up paying only for interest. Also, check with your service provider if you can eventually switch credit cards. Perform a comparison among different cash back credit cards if you want since the benefit from these types of credit cards is pretty straightforward.

    Once your credit card status is ironed out, be discriminating in what you use it for. Don’t use it as a way to make ends meet, or as an extension of your salary. If you can, pay off what you owe in full every cycle, and always pay ahead or on time.

Be your own financial success story

You don’t have to be a millionaire to be considered financially successful (although that would be a “nice to be” status). All you need to do is to start applying the above tips to simplify your life and begin saving, not just for a rainy day, but also for your future.

Who knows? A few years from now, you may have the investments you’ve always dreamed of and a successful business you enjoy running.

AUTHOR BIO

Deepak Kumar is a Co-Founder of SoulWallet, a neutral comparison portal for consumer financial services. With a team of “out of the box” thinkers and a deep understanding of the UAE consumer banking industry, the company helps customers make the best choices while shopping for financial products such as credit cards and loans.

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