Building a stronger financial foundation is necessary if you want to be successful in the future. To be specific, if you want to have a secure financial future, you need to make sure that you have a strong base to start with. But what exactly does it mean?
A financial foundation is like the base by which you will build your personal wealth. It does not only refer to the amount of money that you will have. It also refers to the financial habits and behavior that you will apply as you use your money. The truth is, the latter is more important than the amount of money that you will start with. Some people start with millions – only to end up bankrupt. Others have so little and still ended up becoming financially successful.
The great thing about having a financial foundation is the confidence that comes with it. When you know that you have the abilities to grow your money, that will give you the determination to succeed regardless of how much you have in the beginning.
According to reports, consumer confidence continues to rise. This is a good indication that Americans are in a good place. This means they consider themselves to be in a positive financial position. They have a steady income and they have a handle on any financial obligations – like debts. It can also mean that they have some savings or emergency funds that can help secure their financial future.
Let us get one thing clear. The amount of money that you have is not the only indication that you are a financial success. The truth is, learning how to manage your finances is the best way to secure your future. And the best way to start is to build a stronger financial foundation.
6 steps to strengthen your financial foundation
In case you are not yet confident with your personal finances, you need to start working on strengthening your financial foundation. Fortunately for you, there are 6 easy ways for you to accomplish this task.
Teach yourself to spend below your means
Start by teaching yourself how to spend below your means. This is actually a very simple rule – yet quite hard to commit to. We have the tendency to spend every penny that we earn. While we deserve to live a comfortable life, that should not be done with a complete disregard for the future. This is the reason why it is always a smart move to keep yourself from spending everything on your paycheck. The extra money that you will not spend can go a long way in terms of helping you secure your future through savings and investments.
Track what you spend
If it is hard to make yourself live below your means, you might want to check all your expenses. By tracking what you spend on, you get to have an idea about the costs that you may be able to live without. It helps to have a mindset that every expense should have a reason – specifically, a good reason. Just ask yourself a couple of questions. First, is it something you need to survive? If not, ask yourself if this is something that will help you increase your personal net worth. If the answer to both questions is “no,” then you should think twice before you go through with the expense.
Be smart with debt
Once you have looked into your spending habits, the next step is to take a look at your debts. According to statistics, most Americans have some form of debt. The generation is the most indebted are the Millennials – with 81.5% of them being in debt. You can probably attribute this to both mortgage and student loans. In close second are the Baby Boomers (80.9%) and then in third the Gen Xers (79.9%).
While it is okay to use credit, you have to make sure that you are using it wisely. Even if you work hard to build a stronger financial foundation, it can be shaken by debt. If you need a good reason to spend money, you need an even better reason to use credit. If this is not something that can help you increase your personal net worth, then it is never a good idea to use credit. In case it is necessary, make sure you have a debt repayment plan and that you can commit to it.
Learn how to invest
Apart from your debt, it is also important for you to learn how to invest in stocks, bonds, and even mutual funds. This is one of the direct ways for you to make your financial foundation stronger. You have to learn how to take advantage of compound interest. This is a great way for your money to work for you. Even if you start small, as long as you are committed to adding to your investment, it will grow on its own.
Aside from the stock market, you can also invest in things that appreciate over time. This includes your house or jewelry. The fact that it appreciates over time means any growth can be added to your net worth.
Secure your future
When you invest your money, that is already one way for you to build a stronger financial foundation. It is also the first step to a more secure financial future. However, that is not the only thing that you can do to make your finances more secure. You can also build up your emergency fund to help you during unexpected events in your life. This will keep you from borrowing money out of desperation. Another thing that you can do is to keep contributing towards your retirement fund.
Set financial goals
Finally, you should always make sure that you have a financial goal. There are so many goals that you can choose from. You can save up for the down payment of the house that you plan to buy in the future. If you have kids, you can save up for their college education. Saving for a vacation is also something that you can do. Having a goal will help you make better decisions when it comes to your money – specifically when it comes to saving or spending. It will give your choices direction and will also keep you from making mistakes.
Maintaining your strong financial foundation
Once you have a stronger financial foundation, your effort should not stop just yet. It is just like when you tried to lose weight. Even if you have reached your goal, you still have to continue with your efforts to exercise and watch what you eat. It is the only way for you to maintain the weight that you currently have.
The same principle applies to your finances. You need to apply financial management just like a regular exercise routine. As long as you want to maintain what you have, you need to continue managing your money. You only have to change it if you want to improve your current financial situation. The details will not be the same but the same money management principles will still be in effect.
To help you maintain a stronger financial foundation, here are some of the things that you need to do.
Live with a budget
Regardless of your financial situation, a budget is always needed. If you have a lot of money or you are struggling to make ends meet – you need to have a budget plan so you can manage your money properly. So if you want to improve your financial situation, or at least maintain it, make sure you create a budget plan.
Be in the know
Knowledge is also something that will benefit you in the long run. You have to educate yourself so you are aware of the different options that will help you keep a strong financial foundation. Reading the newspaper, monitoring the interest rates, and basically understanding what is going on in the nation is one of the things that you need to do. If it all seems overwhelming, you can start with your own financial situation. Understanding your own finances will help you make the right decisions that will help you maintain a strong financial foundation.
Always have a goal
Goals will benefit your finances in many ways. According to statistics, 7 out of 10 Americans were most likely to set a financial goal in 2018. While this does not guarantee that the goal will be met, it is still the preferred first step in any endeavor. It defines what has to be accomplished and will give you focus. Sometimes, when there is no goal, you will not feel serious enough to try to meet it.
Update when necessary
In life, you will go through a lot of changes. That means your budget and goals will change over time as well. This is why it is important to have updates every now and then. You need to change your budget plan so it can accommodate new goals that you need to reach. There are goals that may have ended and new ones that will help you build a stronger financial foundation. Make sure you do not miss them.