Do you do budgeting well?

Budgeting is simply about taking a closer look at how you’re spending money and making changes to meet your financial goals. It’s important to consider where you’re spending and if your spending is in line with your priorities and your values in order to budget well.

Many of us think that it is tedious and repetitive to budget and track expenditures, more like a punishment for those who lack discipline than a financially efficient method. In fact, if you budget well, track how you spend your money, measure that against your goals and values, and adapt accordingly , financial success is only really possible.

For instance, if one of your goals is to travel more but you spend 30 percent of your income on partying and fine dining, financing your trip to Vietnam is going to be difficult. You’ll have to make some changes to turn this dream into a reality.

Begin by making a list of your fixed monthly expenses, looking for places to cut or shift costs.

Try to see it as a game, or challenge. In order to spend less money, strive to make a deliberate effort. Take your motorbike to work instead of using public transport. Packing sandwiches instead of going out for lunch. Take a stroll around your neighborhood instead of going to the cinema, and explore places you’ve never paid attention to before. Once every two months, tot up how many good days you’ve had.

Another challenge you could try is to make as few transactions as possible in a week. If you have a spouse or partner, you can even compete against each other. If your vice is impulse-buying books on Amazon, then next time you fill your virtual cart, leave it for a few days and then check if you really want those books after all.

Not only are these challenges fun, they also help you to realign your spending habits and make clear which things you really need to spend your money on and which things are superfluous.

Unlike common wisdom, thumb rules like saving such-and-such a percentage of your income per month aren’t all that useful to achieve your financial objectives. It should also be your savings plan in the same way that your financial plan is personal. The aim should be to save as much as you can possibly, an amount that depends on your particular circumstance.

Once you’ve determined how much you can save, you can make life a lot simpler by automating the process. Let’s say you can afford to save $300 a month. By automating the transaction, you get to spend less time thinking about whether to spend or save. You might eventually forget about it altogether, and be pleasantly surprised that your savings have grown years later.

You should pay off your debts aside from investing, beginning with the one with the highest interest rate. Paying off debts is simply an investment in your future financial. If you’re racking up debt on your credit card for items that don’t match your goals, then you’re making sure you’re going to be busy paying down the road interest on your loans, rather than saving for what you really want to do.

In essence, you’re saying “no” to the goals you set and “yes” to something else. If this “something else” is really important, you might want to revise your goals.

You’ve now identified where your money is coming from, how you spend it, and you have a plan to pay off your debts. The final blink will look at the last step in your financial plan: investments.

There are innumerable businesses, initiatives and institutions that promise a return on investment if you fork out some money. So how should you know where to invest? Should you follow the advice of your friends, family or authoritative-sounding finance people on CNBC?

You could, but then you’d be speculating and not really investing, i.e., making investment decisions with your gut rather than your head. To make the best investments, you need to look at investment as a science.

A safe way to prevent financial errors and risk is to research academic journals and other peer-reviewed investing publications. People have been trying for a long time to make their money grow and for years , experts have been researching investment. Predicting how a stock will do in the future is a complex task, definitely not one that will help you decipher by intuition alone.

Before you make any investments, study them as if you were a scientist. Otherwise you might make decisions that you later regret. In addition to treating investment like a science, it’s important to mitigate risk by diversifying your portfolio, or spreading it over many different types of stocks.

No single stock is going to be your golden ticket to riches, and you can’t count on discovering it if such a stock exists. How many of us would have expected that when it first went public, Facebook would become this big? How many of us might have forecast the 2008 financial crisis?

Instead of trying to find that miracle stock, you should instead spread your risk over as many sectors as possible. While some of them might lose value, others might appreciate, helping to balance out any potential losses.

Your portfolio should be quite mixed, including national and international companies, big and small in many different sectors. This way, you have the best chance of turning a profit and reaching your financial goals.

A financial plan starts when you ask yourself why money matters to you and build goals that represent your response. After that, it’s a simple matter of evaluating your expenditure, savings and investment and making changes that will place you on track to achieve those objectives.

Remember to speak with your partner about finances. In order to see which of your values overlap and which are incompatible, if you share finances with a spouse or partner, it is necessary for them to engage in financial planning. This way, you two will work for a financial future that is a win – win for both.

Check out my related posts: How are economic or financial bubbles formed?

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