There’s an increasing awareness of the value of personal finance. With the economy in a volatile state and the world going through tremendous changes, there is no one else we can rely on but ourselves. And that’s what personal finance teaches- being able to rely on yourself when it comes to financial matters. It is perhaps among the most important things to study if anyone wants to increase their net worth, and below are some tips to help you get started.
Know and Understand Your Net Worth
First off, know your net worth. This will give you a good insight into your current financial situation. It’s important that you know where you are financially so you can set proper and realistic goals for your future. Understanding what type of expenses and how much your liabilities set you back will allow you to create a clear plan of action so you can pay off debts more efficiently. Also, knowing how much your assets are can give you an idea of how you can increase them, or which areas you’d need to improve.
Your net worth is your assets minus your liabilities. Your assets don’t only mean your salary. In fact, it’s more concerned about your investments like your house, car, and stocks among others. Your liabilities, on the other hand, would be your debts like mortgage, student loans, car loans, etc. There are various services to help you calculate your net worth, and once you know what yours is, it will be easier to address your financial woes.
Pay Off Your Debts
You can’t exactly pay off all your debts when your finances aren’t intact, but neither will you get your finances sorted out when you’re too busy paying debts. It feels like a vicious cycle, and it is. That’s why the most efficient way to go about things is to put in the effort to clear off your debts first. It’s important to look at your debt payment options and to consider refinancing your loans if it helps your situation.
Stop Living Above Your Means
Living off of debts is never a good way to lead your life. Luxury brands charged to your credit card might make you look good in public, but they aren’t going to help you in the long run. It might eventually ruin your financial situation if you make a misstep and get buried in debt. As you make your way up to your career and increase your buying power, don’t make the mistake of upgrading your lifestyle above your capacity. Always look into your finances and plan out your expenses instead of carelessly splurging.
Get a Car That Will Last You
When getting a car, or any other property for that matter, it’s better to always consider the long-term factors. Think about maintenance costs, insurance premiums, and the fact that these types of properties depreciate in value. So instead of thinking about reselling your car eventually, get into the mindset of owning things for long-term use. For example, if you plan to buy a brand new Subaru car, instead of thinking about its resale value, treat it as your car for life.
This approach can help you minimize the costs you allot on your car, like your loan and maintenance fees. Not to mention you won’t be making financially impacting decisions such as buying a new car. This effectively protects you from unneeded spendings in the future.
Have an Emergency Fund
Before all the discussion of paying off your debts or getting a durable car that will last you, it’s important to acknowledge unexpected situations. Unforeseeable circumstances are inevitable, and the last thing you want is to be in a financially disadvantageous position. Anything can happen and it might involve you spending more money than planned, and in such a case, having an emergency fund can help you. While the calculation varies, a good number to start with is three month’s worth of your living expenses.
This covers your mortgage, utilities, and food- the basic necessities that get you to survive everyday life. You need at least three months’ worth of the amount, and if possible, six months’ worth. While this might sound like overkill, you never know what can happen, and having funds dedicated to helping you in tough situations will do a lot.
From climbing out of a financial crisis to increasing your net worth, everything is possible. To achieve it, however, you need to make the right financial decisions. It requires financial responsibility and ownership, and hopefully, through these tips, you can manage your way until you’re in a better financial situation.