Are you getting nowhere financially?
It sucks and there is no quick fix. What you can do is to accept the current status and learn to be financially disciplined.
There are only 2 simple ways to be richer in the foreseeable future.
- Increase your income
- Reduce your expenses
You might be thinking that I must be kidding you, but it is all you need to do, really.
The only way to be financially stable is to spend less than we earn.
Be richer by Increasing Your Income
You can increase your income by:
- Being so good in your job that you can get promoted faster and command a higher salary
- Increase your income streams. Search for other sources of income other than your day job
- Make your money work harder for you by learning to invest your money properly
- Have savings and deposit the money into savings account that offers high interest rates
- Decrease your expenses. Have the practice of recording your expenses, it can lead to changes in your lifestyle
Be richer by Reducing Your Expenses
You can reduce your expenses by:
- Recording your expenses so that you know where your money is going
- Live a simplified lifestyle
Get Your Finances Right
AK mentions in How to have a comfortable retirement,
The first thing that I would tell them is to go through all their expenses and decide which of them are needs and which of them are wants. The wants ought to be cut out and, then, see if there are alternative options which are less expensive to meet the needs.
The second thing I would tell them to do is to stick to this simplified lifestyle and do not scale up with the next salary increment which they might get. The reason why many people don’t ever seem to save any money is that they upgrade their lifestyles as they make more money in life.
Sudhan uses Mr Tan as an example in Can We Save More To Be Financially Stable? on how Mr Tan is able to save $8064 a year by making little changes to his lifestyle and grow this $8064 savings into $19000 by investing them.
Now, $8,064 might sound like a lot to some. The story of Mr Tan might even inspire some to start cutting back on their taxi rides or their daily Starbucks. But the story of Mr Tan doesn’t end here. Saving $8000 is great, but Mr Tan can actually put his savings to good use to increase his income (inflow).
If Mr Tan were to invest the amount he could have saved in a year in the STI ETF (SGX: ES3), an index tracker mimicking the Straits Times Index (SGX: ^STI), he would amassed slightly above $19,000 in the span of 10 years. The STI ETF returned 8.97% per annum, inclusive of dividends, since 2004.
It is not easy to increase our income but reducing our expenses is definitely a good start to get our finances right.