Financial balance seems like something that you only get from accounting subjects right? But did you know that it is also a concept that you have to apply in your personal finances? When you are trying to learn financial management, your aim is to be able to make the right choices about how you will use it. One of the ways to ensure that you are making the right decision is when your finances are balanced.
In the financial world, when you say that you have balanced finances, that means your income is equal to that of your expenses. To be accurate, neither your income nor your expenses should be higher than the other. When you implement this idea in your personal finances, our goal is to make sure that your expenses will not exceed your income. If it does, that only means one or more of your expenses were made in credit. If you let debt take a firm hold in your finances, you could be compromising future life events that need financial planning. It can cost you a comfortable retirement, your dream house, or even an early wedding for you and your partner.
How balancing your finances will lead you to a secure financial future
But that is not all that you will get from finding financial balance. One of the most important things that it can give you is financial security.
We’ve all heard the advice before: aim for financial security. In a world where money is a huge factor in living a comfortable life, financial independence is no longer enough. We have experienced that you need to target security because it can help protect you from the damages caused by the uncertain future. These uncertainties can be an unexpected job loss or a sudden illness. You want to be able to prepare for these while at the same time, allow yourself to currently enjoy the fruits of your hard work.
There are many conditions to have financial security and most people do not realize that it is simply about smart financial balance. But how can the latter help you secure your financial future?
It trains you to be aware of your income-expense relationship.
Balance is all about equality. When you are focused on finding balance in your finances, you will always be concerned about whether you are spending within your means. That makes you more conscious of how you are using your money.
It prompts you to make use of budgeting.
Budgeting is one of the key tools that will help you achieve financial balance. It is your main monitoring tool that will also serve as your guide. When you learn how to budget, you will be putting your priority expenses high on your list.
It makes you look at the bigger picture.
Some people shy away from financial management or even simple budgeting simply because it seems too tedious. Well if you look at the big picture, all the small details will not matter because you know where it will all lead to. Although you will be concerned about the details, you will not be engrossed in them. With your eyes focused on the finish line, you will find motivation in everything that you do.
Your financial life will change as you grow older because your priorities change too. For every change in your life, you ideally want to revise your financial plans. For those who are too busy with the various details in their lives, this can get to be too meticulous. This is why concentrating on financial balance is the simple way to do it.
Financial balance does not only mean your expenses are satisfied by your income. To be smart about it, you also have to make sure that you are satisfied with where your money goes to. That is how you become a better financial manager and that is how you reach your goals of financial security.
3 keys to balance your finances smartly
While we may understand the needs to find financial balance, we also have to know how we can achieve that. More importantly, you want to do it smartly. When you want to balance your finances smartly, that simply means you have to go beyond the present. You have to cover everything: the past, present, and future. Here are the three things that will help you do all three.
Pay off your debts and be smart with future credit.
This is how you deal with your past. Debt is actually your way of paying off the expenses that you did in the past. That has got to change. You need to come up with a debt relief plan that will help you pay off the unnecessary debts that you made before. Debt payments can seriously hinder you from achieving a healthy financial balance.
We are not saying that you throw away your credit cards or something similar. We are encouraging you to get rid of your credit card debts. If you want to use your cards, by all means, do that. But make sure that you think about how you will spend it so that you can pay it off in full when the billing comes in. That is how you avoid wasting money on finance charges and interest.
We are also not implying that you should avoid taking credit. We just want you to be smart about it. You can borrow money but make sure that it will help set you up so you can afford to pay for it. If not, then look for other means to finance your needs without going into debt.
Budget for your priority expenses.
This is you taking care of the present. We have mentioned that a financial balance will encourage you to use a budget. This tool will help ensure that your current obligations are all taken cared of. You will find yourself to be more organized if you constantly consult your budget. It will help inform you if you can afford something or if you need to hold back on your purchases. Not only that, it will help you identify your priority expenses. That being said, your budget plan naturally goes hand in hand with your financial plans. If you need to pay off debt, your budget will reflect that. If you want to save up for a vacation, your budget should support that idea.
One of the most important goals that your budget will help you achieve is an emergency fund. Americans have a lot of room for improvement when it comes to their emergency fund. CreditDonkey.com conducted a survey that revealed the average monthly savings of Americans. In 2013, their study showed that 33.5% of consumers have less than $100 in their savings. 46.8% have less than 500. That means less than 20% have more than $500 in their account. That is a pitiful amount for an emergency fund. In fact, when asked if they have at least $100 in their hand at the time of the survey, 38% said no.
If you really want to find financial balance, make sure you start using a budget and you build up your emergency fund to strengthen your financial lifeline.
Save up for retirement.
You would think that your emergency fund is enough to take care of your future but that is far from the truth. When we say you have to take care of your future, we are talking about your retirement. According to a research published on the ICI.org by the Investment Company Institute, the total US retirement asset by the end of September 2013 is at $21.9 trillion. The research noted that it rose from the end of June by up to 3.9% ($21 trillion). This is actually good news but you have to realize a couple of important facts about retirement.
First of all, people are living longer. This is good news for us but that also means you have to save more for your retirement. You do not want your money to expire before you do. By then, you would be too old to work and add more to your retirement fund.
The second important fact that you may want to know is that prices are continuing to rise. Basic commodities are steadily rising and they are expected to continue doing so as each generation reaches retirement.
Lastly, health care costs are skyrocketing. With old age comes a list of medical requirements and you need to prepare for these as well. You do not want to end up suffering in the future because you did not save up enough money to finance your health care costs.
All three of these, debts, budget and savings are important tasks that you have to take care of to achieve financial balance. Remember that your financial security is riding on this so try to make smarter choices about your personal finances and make sure they balance each other out.