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How To Spring Clean Your Personal Finances

dollars hanging out to dryDid you know that spring cleaning is not only applicable to your home but also to your personal finances?

March is here and everyone is getting ready to do some spring cleaning. Once the snow has melted, it is time to check out homes to see how it can be cleaned and maintained for the coming year. While you are at it, why not look into ways that you can clean out and make changes in your financial management efforts?

What you need to realize is that your finances require constant checking. It is actually not something that you do only once a year. You do not set up a budget and then leave it at that. A lot of changes happen in your life that directly affects your personal finances. When you get an increase in salary, when you open a monthly subscription, when you use your credit card – these require you to revisit your financial situation to make sure that your decisions will not cause your financial demise.

According to MarketWatch.com, there will be a lot of improvements in the economy this coming 2015. One of them is the increase of employment. In 2014 alone, 3 million jobs were created for the unemployed. This is predicted to continue this year. With additional news about gas prices and possible stagnant inflation rate, you want to make sure that your finances is positioned in such a way that will make your net worth grow this year. Ideally, you want to do a monthly checkup to make sure that your finances are in good condition. But if what you will do is something as thorough as spring cleaning, then it can be done once a year.

5 ways you can clean out your financial life

There are three important reasons why you need to clean out your finances.

First, it allows you to organize your financial files. When things are organized make you more efficient as you complete financial tasks like paying your debts and bills. But more than that, it gives you a clearer picture of what your current financial situation is like. It allows you to make better decisions because you are aware of what your finances can afford. Finally, cleaning out your finances will help protect you from the dreaded loss of data or identity theft. These will not only rob you of money, it can also ruin your financial prospects. It can ruin any opportunity that you may have to improve your financial position.

So now that you know why it is important to spring clean your personal finances, the next question is, how are your going to do it? Here are 5 things that you can do.

  1. Revisit your budget plan. Your current budget is a reflection of your financial priorities. In most cases, your financial priorities are aligned with your current goals. As we age, our goals change over time. When we experience changes like marriage or parenthood, we find that what used to be important is no longer valuable and we look into things that we never thought would mean so much to us. Since these changes are constant in our lives, it is also important that we revisit our budget every now and then. That is the only way we can make sure that it is still aligned with what we currently prioritize in our lives.
  2. Simplify your financial tasks. You may also want to revise any payment terms that you may have – especially if it involves debt. If you have a lot of credit obligations, you may want to change your payment term to grab a lower interest rate or to help you save more in the long run. For instance, if you received a salary increase, you may want to put in more money into your debt payments. That way, you can pay the balance off a lot faster. In terms of managing your finances, you may want to look into the latest apps that can help you stay on top of your money.
  3. Try to get better deals. We all have monthly payments to take care of. As you are spring cleaning your personal finances, you may want to take this time to review your payments and to see if there is some way that you can get a better deal. If that means calling your service providers to negotiate a better offer or going to a new one, maybe that is what you should do. As long as it will help you get a better value for your money, the change should be worth it.
  4. Take a peek at your credit report. One of the things that you need to do as a good money manager is to check your credit report every now and then. Each year, you are entitled to get one free copy of your credit report from each of the three major credit bureaus. You might want to pick one of the bureaus and get your free copy to see if everything is in order. You can see if you had been a victim of identity theft or not. You can also check how much money you owe your creditors. If there are any errors on your report (like a debt that is already paid or a credit account you did not open, you need to have this fixed immediately. According to an article published on the NYTimes.com, all three major credit bureaus, Equifax, TransUnion and Experian have promised to improve their dispute resolution process. Now is a great time to do just that if you find any errors in your report. You do not want any mistake or wrong entry haunting you.
  5. Physically clean out your wallet and financial files. Lastly, you may want to take a look at your wallet and your financial files. If there are bills that are already paid or receipts that you no longer need, you may want to dispose of them. And you can also review the important documents and receipts that you need to keep for a very long time. Make sure these are kept in a secure location.

These 5 tips should help you make a thorough spring cleaning on your personal finances.

How to take your financial situation to the next level

Now that you have cleaned out your finances and have put everything in order, it is now time for you to consider the steps that will take your financial situation to the next level. After all, you do not want a stagnant financial life. You want it to keep on improving because it will really benefit your future.

Here are a couple of things that you can do.

  • Pay off your debts. If you really want to improve your net worth, you should consider erasing all your debts. You are wasting money through the interest that you are paying your creditors. Instead of investing that money, you are just making them rich. So if you have the extra cash, just pay off what you owe so you can work on growing your money.
  • Boost your emergency fund. According to an article published on Bankrate.com, a lot of Americans, although they keep budgets, do not have enough cash to deal with emergency situations. 6 out of 10 do not have the cash outside of their budget to help with any significant emergency expense. This could lead you to debt so make sure your reserve fund is sufficient.
  • Increase your retirement contributions. If you want to directly invest in your financial future, you need to increase the contributions that you are making towards your retirement account. This is especially true if your employer is matching whatever you are contributing. It will increase the free money that you are practically getting and make yourself more secure when you retire.
  • Add to your investments. Speaking of investments, you may want to start investing in something. It does not have to be in stocks or bonds – at least, if that is something that you do not really understand. But you can at least invest in something that grows in value over time – like gold or your own home. It will help increase your personal net worth. In truth, it does not have to be a lot. You can invest on a pauper’s budget if that is all you can afford. As long as you start with something, even if it is small, it will grow soon enough.
  • Set up financial goals. Lastly, you may want to set up some realistic goals that you can reach. If you have goals, you have something to focus on. Here is a video that will help you set financial goals – at least, those that you can commit to and succeed in achieving.

How To Improve Your Personal Wealth This 2015

piggy bank with moneyDo you think that you experienced any genuine financial improvement last year? As we start 2015, you may want to look back a little to figure out the right and wrong decisions that you made about your money. This is important if you want to improve your personal wealth by the end of this year.

In truth, improving one’s finances is not as hard as it used to be thanks to our rising economy. According to an article published on Bloomberg.com the US economy improved last year. The household net worth is actually $1.3. trillion higher than the peak before the recession – which was at $67.9 trillion in the second quarter of 2007. This is caused in part by the improving real estate market that grew by 4.9% by September of 2014. Not only that, the improving job market is also a factor in improving the net worth of Americans.

It was not all good news though. There was a damper in the household wealth improvement caused by a drop in the stock indexes. However, this should be easy to recover as long as consumers take extra care of how they manage their investments. Another thing that may be slowing the growth of household wealth is the rising consumer debt. Obviously, the growth in our personal wealth is making us confident when it comes to taking in more credit.

3 steps to improve your finances this year

If you want to take your wealth to the next level, you need to start planning how you can do that. As early as now, you should have plans in place that you can follow periodically this year. Without a strategy, you will just go around blindly, hoping that you will hit the jackpot. Obviously, this is not the best way to improve your personal finances this year.

If you really want to revolutionize how your money is spent, think about these three steps that you can work on this 2015.

Pay off your debts

The first thing that you should do is to pay off your debts. According to a speech delivered by William C. Dudley at the Bernard M. Baruch College in New York, when debt goes down, the net worth goes up. The speech titled “The 2015 Economic Outlook and the Implications for Monetary Policy” was published on FRB.org. While discussing how consumers are in better financial shape, the speaker revealed that the household liabilities have gone down by roughly $500 billion as compared to the peak debt amount in 2008. This is helped by the lower interest rates – which is a factor in increasing debt loads. With this decrease in debt, the household net worth was able to recover and increase – thanks to a higher asset value.

It seems to correlate with each other. The less debt you have, the more you have in your personal wealth. Even if you own a home that is valued at $500,000, if you still owe $400,000 in your mortgage, you only have $100,000 in your personal assets. The more you pay towards your mortgage, the more equity you own in your home. This concept can be applied to all your debts – whether it is credit card debt, auto loans or student loans. What you are paying towards your debts can be used to grow your savings or increase your investments.

Another way that paying off debts can improve your wealth is the money that you will save on interest. This is only making your creditors and lenders rich. Pay off what you owe as soon as possible to lower the money you waste on interest payments.

Increase your savings

Once you have paid off your debts or at least implemented a repayment plan, it is time for you to focus on your savings. Increasing your savings is the direct way for you to improve your personal wealth. When you spend, you are distributing what you earned and putting them in the pocket of other people. When you save your money, you are putting it in your pocket. Whether it is to be spent on something that will increase your net worth or saved for the rainy day, the bottom line is it will be an addition to your assets.

According to an article published on EquitableGrowth.org, wealth comes from two sources – your income and your savings. While wealth can be inherited, that is something that is beyond your control. Your income and savings, on the other hand, is something that you have full control over – more so with savings. Your income will still depend on your employer but the amount you save will entirely be based on your own discretion. So grow your savings and it will directly affect your wealth.

Map out your financial goals

After working on your debts and savings, the third step that you need to work on is mapping out your financial goals. In some cases, this should be the first on your list. But considering how debt is rising and savings are decreasing, it may be more prudent to work on the first two before adding more financial goals.

So what goals can you work on? That will depend on you. It can be a new home, a car, your child’s college fund, retirement, or a business. The important thing is to have a goal. When you have a goal, it gives you focus. It gives you motivation. It gives you something to reach for. In essence, it gives you something to live for in the future. Not only will it do all that, it can also grow your personal net worth – at least, if you choose the right financial goal.

Tips to make your wealth last long

Growing your personal wealth is only the first phase in achieving financial success. Make sure that after growing your wealth, you know how to make it last long. You may end up with a huge amount but if you do not know how to manage it, this will not last.

Here are some tips that can help you make your money last long.

  • Live below your means. One of the fastest way to deplete your wealth is by living beyond your means. This simply means you are spending more than what you are earning. Some people think that living within your means is the best way to go. While it will keep you in debt, it will only preserve your finances and keep you in the same financial state. The best way to make your wealth last long and increase it at the same time is to live below your means. This way, you can take care of all your expenses while having extra money to set aside for savings.
  • Think before you spend. Regardless of how much wealth you have, smart spending will always be important. Even if you can afford it, that does not mean you should buy it. Ideally, you want to buy things that are aligned to your financial goals. If not, then think carefully before you make the purchase.
  • Make investments. Like savings, this investing is another way to grow your personal wealth. think about where you can place your money and consider the risks that you will face. Without a little risk, growing your money will not be as rewarding as it should be. Investing the extra money you have is one of the best ways to make your finances work for you.
  • Be aware and educate yourself at all times. In the end, you can make better financial decisions if you are aware of your options. Always make time to educate yourself about something. Read about rules, laws and various techniques to manage your money. While hiring financial experts will work, it will serve you better if you know what is going on with your personal wealth.

3 Ways You Can Outlive Your Retirement Money

seniors sitting on coinsDo you think that your retirement money can outlive you? Surprisingly, this question is causing a lot of people some great deal of retirement stress.

The ideal scenario is for your funds to outlive you. That way, you can be assured that  you have more than enough money to spend until the very end. Running out of funds just when you need it the most – especially for health reasons, can be a real nightmare. Your options will be to rely helplessly on your loved ones, be in debt, or suffer in silence. You do not deserve any of these options especially when you have worked very hard in your youth to live a high quality lifestyle.

Although we have seen a lot of improvements after the Great Recession, an article published on USNews.com believes that the retirement crisis is still upon us. The article revealed data from a recent government study that showed how a little over half of the workforce is involved in a retirement plan. The US Bureau of Labor Statistics also revealed that of those working in the private industry, only 48% is putting aside money for their retirement.

Given these statistics, you can see that a lot of us may be forced to make do with insufficient retirement money. If you are still young, you still have the time to correct your mistake by creating a retirement plan and making bigger contributions toward your account.

But what if you are in your pre-retirement years or already about to retire? How can you ensure that your retirement fund will last longer than you?

Here are three things that you can do.

Move to a country that will help you stretch your retirement fund

For some of you, this might be going to the extreme. Moving to a new country may be intimidating but it can help you stretch the limited funds that you have in retirement. Think about it for a minute.

In a recent article, InternationalLiving.com released a list of the top retirement destinations in 2015. Each year, this site ranks countries from around the world that provides retirees with the best life possible. This year, the top country that you can live in is Ecuador.

Now how can living in Ecuador help you stretch your retirement money? Here are some interesting facts about this country.

  • Low cost of living. Can you believe that you can live comfortably in this country for less than $1,000 a month? Even if you live in the big cities like Guayaquil, Quito or Cuenca, it is possible to build a high standard of living for $1,500 to $2,000 a month. That is a far cry from living in places like New York where the rental price of a 2 bedroom apartment can cost your more than $3,000 a month. The budget of $2,000 or less in Ecuador is already inclusive of your home, utilities, food, clothing, entertainment expenses and even transportation.
  • High quality and low cost health care. We are always complaining about the high cost of healthcare in the country. When you retire, you can expect that most of your retirement money will go to your health care needs. This is where Ecuador will sound much more appealing to you. Their medical professionals and facilities can rival even those from developed countries and they will not cost as much. In fact, the prices are only around 20% to 40% of what it will cost you to get medical care in the US. The same is true for dental care.
  • Low real estate prices. Living in your own home is a real treat for retirees. Regardless if you are in the US or in Ecuador, it will always be a growing asset. While the prices have gone up in recent years, the price of real estate in Ecuador is still relatively low. You can get a beachfront property for $150,000. An apartment in one of the big cities in the country will only cost you less than $200,000. This country will allow you to invest in real estate without depleting much of your retirement money.

These are the main financial reasons why retiring abroad will benefit you when it comes to your retirement funds.

However, if you think that moving to a new country is an extreme that you cannot do, then simply relocating to a city that costs less than your current may do the trick. Just like the video below about a retired couple. They used to live in New York but they decided to live in Florida to cut back on costs. Here is the full video.

Be meticulous about your expenses when you retire

The next thing that you can do to help you outlive your retirement money is to cut spending. How can you do that? By being meticulous about where your money is going. The thing about being retired is you have a lot of time in your hands. If you worked 40 hours a week, what do you think you will do with the free time once you are retired? Surely monitoring your finances will not take up that much time so you might as well start being more concerned about where your money is going.

There are a couple of habits that may take up your time but will definitely help you lower your spending.

  • Be cautious of points. Whether it is credit card points, rewards programs or airline miles, you need to pay attention to the points you are generating from your usual spending. For sure, there will come a time for you to get something for free without necessarily increasing your spending. You can even add more means for you to get points and freebies – as long as you are monitoring it well and you will really use whatever you are purchasing.
  • Clip coupons. A great way to lower your spending is to use coupons whenever you buy something. These coupons usually come for free – you do not have to buy them. You can opt to browse online for coupons or you can buy the Sunday paper for the weekly collection of coupons. Just make sure that you will really use these coupons and the products they represent.
  • Browse for promos and discounts. The last tip is to take the time to look for promos and discounts. Since you have all the time in your hands now that you are retired, you can spend an hour or two comparing prices before you purchase anything. It is ideal for you to create your grocery shopping list ahead of time so you have a reference for your research. Not only will you save on your retirement money, you can also save your time and energy in shopping because you can plan where you will buy the stuff that you need.

Engage in low cost activities for retirees

The last tip that we can share with you is to engage in low cost activities. As mentioned, retirees have lot of time in their hands. Naturally, you will develop a couple of hobbies to pass the time. You may begin to engage in sports, a new skill, or even travelling.

While it is your decision what to do with your time, make sure that it will be something that will not compromise your retirement funds.

An article from Time.com, discussed how retired individuals will no longer spend as much as they need to when they retire. In most cases, their children would have moved out of their home. Not only that, you do not have to spend as much as you used to to commute everyday – since you have stopped working of course. You will also stop contributing to a lot of payments like Social Security and retirement. What will increase is probably your health care and entertainment expenses but even that will not bring you back to what you were spending before – at least if you follow these two tips.

  • Opt to enjoy off-peak activities. Whether it is going to the beach, enjoying a particular sport or any other travel, you may want to enjoy these activities during the off peak season. That way, they will be cheaper to avail.
  • Be aware of the time when the prices are low. For instance, if you want to watch a movie, opt to watch the matinee show so it is cheaper. The same is true for retail stores. Sometimes, early or late shoppers get the best deals.

These are only some of the things that you can do to help stretch your retirement money. It all comes down to how you will manage your finances so you can use it properly.

5 Steps To Achieve Financial Freedom

dollar sign at the end of the roadDo you want to be confident about your personal finances? Well you need to work on your financial freedom. This is not really an indication that you will be filthy rich. That is different. But being in this financial state will help you weather any financial storms that may come your way. It is will not stop the problems, it will put you in a position where you have a higher chance of surviving.

RichDad.com defines being financial free as a situation that goes beyond just having more money. It is literally being free to do what you want it life. It is a state wherein you can follow and satisfy what you want to happen in your own life.

According to the article in that site, financial freedom will most likely involve a lot of changes in your life. It is a process that you have to go through. It will be difficult at times – implementing the changes that you have to make. That is because if your current lifestyle works, you should already be free from the burden of your finances. You should be enjoying the fruits of your labors without hesitation. If you are not, then obviously something has to change.

The rewards of being financially free is numerous. On top of the list is a happier and more successful individual. You will have growth, improvement and satisfaction that you have never known before. It is beyond how much you earn but more of how that particular income allows you to feel good about your life.

5 step plan to be free from financial problems

We have mentioned that the road to financial freedom is a process. There is actually 5 simple steps to help you achieve this financial state.

  1. Boost your extra money. By extra money, we mean you have to increase the money that is left over after you have paid off your usual expenses and payments. Most people will interpret this as earning more money. That is true, but is it not the whole picture. We have said that being financially free is more than just increasing your income. But that does not mean it is not part of the process. It is one half of what you can do. But boosting your extra money also means decreasing your usual expenses to free more money in your budget. It is your choice. This might be a bit difficult considering your current situation in life. Your life’s situation will help you determine if you need to increase you income or decrease your expenses.
  2. Create additional sources of income that are passive. You want to earn more but you want to do it in such a way that will not compromise your other obligations in life. Some people sacrifice their time with family and personal relaxation just for the sake of earning some extra money. A survey done by the University of Massachusetts mentioned how the earning capabilities of people change when they have children. The results of the survey published in BusinessInsider.com said that men increased their earning by 6% while women experience a decrease by 4%. This is probably because men are expected to boost their income to help finance the extra needs of their kids. Women, on the other hand, are obviously unable to earn more because they are usually the designated caretakers of the children. While these are understandable, you need to find out how you can earn passive income without compromising your time with your kids. It can actually work. Men do not have to sacrifice their time with family and women do not have to deal with a lower income to take care of their kids. All it takes is a stable passive income sources – take note that you need more than one to achieve financial freedom.
  3. Pay cash for your expenses. If you have to use credit cards for the rewards, you need to make sure you have the cash on hand to pay it back in full. This way, you do not waste money paying any interest. When you pay for things in cash, you get to limit just how much you will spend. If you do not have cash, you will stop spending. It is as easy as that. Controlling your expenses will be more effective this way.
  4. Contribute more towards your future. Anything extra that you have right now should be invested in your future. This could mean your retirement money. Invest your extra finances so it can grow separately and secure your future. That should help you feel more secure about what lies ahead. Not only will you be secure, you will be prepared for any financial need in the future because you have saved up for it. Just make sure you know where to put your money so it is somewhere it can grow best.
  5. Give yourself funds to enjoy your life. Your present happiness is still important. Never lose sight of that while you are pursuing financial freedom. Do not work yourself to death and then lose the chance of enjoy today. You simply have to budget how much you will spend on the things that will make you happy today.

If you notice, the steps towards financial freedom involves financial management: budgeting, saving and smart spending. These are the key to keep your finances from flying apart.

Things you might have to give up to be financially free

Part of having financial freedom is actually changing a lot about your lifestyle. In most cases, you will have to cut spending on a lot of things. It is not so much about restricting your lifestyle but more of concentrating only on what is essential. You will not deprive yourself. You will just identify what is excessive and cut them off.

According an article published on TheAtlantic.com, Americans have a love affair with houses and cars – big ones! In fact, the article mentioned that one third of the household budget usually goes to the house alone. The percentage is higher as the household income gets lower. Not only that, transportation takes up 17% to 18% of the household budget too. This is too excessive considering there are many alternate options to travel that are much cheaper.

That has got to stop. If you want financial freedom, you need to lower your lifestyle to suit your financial goals. Here are a couple of things that you may have to give up.

  • That big house. We all want that white picket fence surrounding a big home but if your finances cannot afford it, do not force it. We are not saying you should live in the slums. What we want you to do is to choose a modest home that fits your family perfectly and comfortably without the excess rooms that you do not really need. These extra rooms merely give you space to accumulate junk.
  • That new car. Granted that you need a car because you have kids. But that does not mean you need a new one. Pick a sturdy, reliable and good condition second hand car. It will serve its purpose without costing you too much.
  • That expensive annual vacation. You do not need a trip abroad to relax. There are so many places to visit in the country that will help you relax. If you’ve never heard of staycation, it is the option to go on a vacation close to home so it will not cost you a lot of money. The important thing is to spend them with the ones you love.
  • Those trendy clothes, accessories and gadgets. These trends, as attractive as they are, can really ruin your budget if you are not careful. You may want to think twice before replacing your phone or your clothes. Unless it is really necessary, keep yourself from spending unnecessarily on what would eventually become junk.
  • Those expensive entertainment activities. We encourage you to spend on your entertainment to keep you happy and motivated. But you should keep yourself from spending too much on it. Check how you can enjoy your hobbies without costing you a lot of money.

On a last note, it is important for you to realize that financial freedom is not a one time achievement. Once you have reached this stage, you should work hard to maintain it. Otherwise, you could lose what you sacrificed for so long to reach.

4 Ways You Can Stop Living Paycheck To Paycheck

walking paycheck to paycheckDo you want to quit living paycheck to paycheck? Of course you do! Who wants to live a life wherein your income just passes through your hands? This is the life of a person who lives from paycheck to paycheck. These are the people who always have to stretch their salaries to the last penny. They have budgeted their money so that everything goes to a particular expense.

While this seems organized, it is highly stressful. People who just get by on their salaries are those who do not have the extra money to contribute towards their savings. The most scary fact is, these are the households that are usually one emergency away from a financial crisis.

An article published on CNN.com revealed that 25 million household belonging to the middle-class are living paycheck to paycheck. These are the families that are not unemployed. They have stable jobs, own their homes and drive a car. But why are they living this way?

The article mentioned that one-third of American households spend all of their salaries at the end of the month. 66% of these come from the middle-class. These are the families that have $41,000 as their median income. The data came from a study conducted by Brookings Institution.

This is a scary data to look into and it further shows how the middle class is really losing ground in our society. While they may appear to be more affluent, their financial situation is not much different compared to poor households – those with an annual income of $21,000 (and no assets). This means that having a higher income does not really guarantee that you can move on to a better financial position.

4 tips that can help you stretch your limited resources

So what can you do to stretch your limited resources and get out of a life of living paycheck to paycheck? Here are 4 tips that we have for you. Most of these moves should give you the extra money in your budget to help you save or invest – two of the most proactive ways you can improve your financial situation.

  1. Opt for a cheaper home. One of the biggest expense in a household is spent on their home. Regardless if you own your home or you are renting, this is the biggest percentage that eats into your income. Sometimes, owning your own home makes it even more stressful. Some homeowner regrets emerged once their home loan payments start getting compromised. And the housing expenses does not end with the monthly mortgage or the rental cost. It also includes the utilities, home repairs and even the occasional purchases for broken furniture, appliances and equipments. One of the ways that you can effectively get out of living paycheck to paycheck is to lower this biggest expense in your budget. Rent in a smaller home if you have to. Sell your home and buy a smaller one. This will lower your monthly payments on the home. Not only that, you will have lower utility bills too. After all, maintaining, heating and cooling a smaller unit is cheaper.
  2. Seek out financial aid. Analyze your financial situation and see if you can qualify for any government aid. It may be food stamps, a health care coverage, or even a straight out cash assistance. You can also explore the benefits that your employer is offering. You might be eligible to receive some benefit from them. You can even look into your tax refund. Maybe you are allowed to get a higher refund on your taxes. These will help you get extra money.
  3. Lower your grocery expenses. While this is not your biggest expense each month, this is the biggest discretionary expense that you can cut back on. It may be a bit tough considering the fact that food prices are going up nowadays. USAToday.com reported some statistics from the Bureau of Labor Statistics that revealed a 0.4% increase in food prices in February this year. Although you are battling with the rising commodity prices, you can find ways to still cut back on your grocery expenses. If your weekly budget is $50, try to slash it down to $30. Use coupons, utilize leftovers, grow your own herbs, make your own cleaning products, shop in bulk – there are so many things that you can do. It will take a bit of getting used to but this is possible if you really want to stop living paycheck to paycheck.
  4. Increase your cashflow. Lastly, you want to think about how you can increase your monthly income. If that means getting another job or putting up a freelancing side gig, it all depends on what you think you can accommodate in your busy schedule. It will involve sacrifices – both on your physical body and your time for yourself and your family. But you do not have to do this for a long time. You can give yourself a few months or even just a year – just enough time for you to build up your savings. We suggest that you look for a passive income business that will not eat up most of your time and yet can provide you with continuous income.

These four tips should be able to help you move away from living paycheck to paycheck.

Reason why your income is never more than enough

Apart from increasing your extra money so you can build up your savings and invest your money, you might want to identify why you are using up your salary the way you do.

Well we have one solid guess: you base your spending on your income.

We have this habit of upgrading our lifestyle whenever we get an increase. When you get a promotion, you buy a house. When another promotion comes in, you scout for a second home. When yet another promotion is lined up, you buy a luxury car. While this may seem normal, how we buy these things lead to our destruction. Instead of saving the money from the salary increase that comes with the promotion, we dedicate it to pay off mortgages and car loans.

It is apparent that there is something wrong with how we spend our money. According to an article published on BusinessInsider.com, 20% of Americans admitted to spending more on their cellphones than their groceries. While having a cellphone is convenient, it is not a necessity – at least the expensive ones are not.

Basing your spending on your income is what keep you living paycheck to paycheck. It is true that it can help us be sure we will not be spending more than we should.  But you should keep yourself from basing your expenses from it.

That simply means if you earn $40,000 a year, you will also set up a lifestyle that requires that much money to support. So what should you do instead?

You have to learn how to base your spending on a comfortable lifestyle – not necessarily your dream lifestyle. At least, not yet. Most of our dream lifestyles involve really extravagant spending. Given that you want to get out of living paycheck to paycheck, you may want to establish a lifestyle budget that is just right. That means you are provided with everything that you need to survive comfortably. It is not affluent or extravagant – but just right.

Once you have done this, you can live debt free on a $30,000 a year income – easy! If you have decided on living at $30,000 a year (that is $2,500 a month), you can earn $40,000 and put aside any extra into your savings. You can also invest that money so it can earn you money even while you are doing nothing.

That is how you really stop living paycheck to paycheck.

Patience Can Teach You Two Things About Personal Finance

woman thinkingThere are many virtues that you need to implement to say that you have mastered personal finance. When we say mastered, we mean you know that you are on top of your financial situation and you are in complete control of where your money goes.

Of all the virtues that is applicable in your financial life, none of them is as important as patience. If you think about it, this particular virtue will lead to a lot of financial habits that will allow you to improve your personal finances.

The role of patience in our financial behavior

Among the things that you will be encouraged to do is planning for major financial decisions. If you think about it, every decision, big or small should be part of a greater plan in your life. This is the only way that you can align all your decisions and make sure that everything that goes on in your life is leading you to a future that you want to have. But when it comes to planning, that means you have to exercise some patience. You need to think about every little detail of what you want to happen in your life so you can plan them realistically.

If you are impatient, you will exhibit impulsiveness that is fueled by your need for instant gratification. That is never a good thing when it comes to personal finance. Nobody excels in their finances with these traits. You need to take make the necessary plans that will take you to your goals and implement it one step at a time. That is how you can achieve what you set out to do.

According to a survey done and published on Gallup.com, American consumers are noted to be more careful in their spending but there is still a huge percentage that leaves a lot of room for improvement.

The survey revealed that 38% of the participants still make impulse purchases and 27% admitted to spending a week’s worth of pay for a major expense. Not only that 16% of the respondents said that they agree to the notion that when they get money, they should spend it immediately. Almost 3 out of 10 also believed that their lifestyle convenience is more important than saving.

While we deserve to spend our money for our convenience, it should not be done at the expense of our future self. If we fail to be patient enough to save for tomorrow, what will happen to us if the economy collapses again?

Our impatience is the one trait that puts our future in danger. that is because it is impatience that leads us to think that using credit to finance our purchases is always okay. This is not always the case and it is one aspect of personal finance that we need to tread carefully.

2 lessons about finances that you will learn from being patient

When you are patient, that are two important lessons that you will learn. These will prove to be very useful in your attempt to improve your personal finances.

It is not possible to have it all immediately.

We all want the American Dream and we want it immediately. There is no such thing as a quick get rich scheme that lasted long. Think about the lottery winners. Most of them splurged their money and ended up poorer than when they started. Being handed everything a once will make you irresponsible. But if you are patient enough to accept that you can only take one step at a time, then that is something that will make you more cautious of whatever personal finance achievement you will make.

One of the best illustrations that we are suckers for that quick acquisition of wealth is our gambling statistics. According to data found on an article published on Mint.com, Americans spent $60 billion on lottery tickets back in 2010. Casinos in the country had revenues of over $125 billion. Although some of these gamblers won, you can bet that they quickly went through these winnings and lost them all again in gambling.

You have to accept that being financially successful requires hard work and most of all, patience. You want to be aggressive, that is true. But it has to be done under the right context and with the right plans in place.

Building up your savings will take time.

The other lesson that you will get from being patience is that savings will take time to grow. We cannot save a big amount at once because our limited income is bound by a lot of financial obligations. We are lucky to have anything to save at all. We need to keep ourselves from feeling frustrated when our savings seem to be slow going. Remember that a dollar a day will eventually grow. Just be consistent about it and it will grow. It will just take time so you need to be patient.

According to statistics from Mintel.com, only 10% of Americans save their extra money. The rest will spend it and will not think twice about saving. This percentage is for 2014 – it used to be double in 2013.

To say that we need to improve is not enough. There is a need to improve and that need has to be acted on immediately. We cannot wait any longer because opportunities that we are getting right now might not last.

Results of applying patience in your financial life

If you are unsure about how you can start, then begin by practicing the virtue of patience. You can start with another aspect of your life until you reach the personal finance side.

Do not be blinded into thinking that what you need to focus on right now is increasing your income. This will never be the right solution. You have to understand that you can be debt free on a $30,000 a year income. It is not the amount that comes in but your behavior when it comes to using that money. When it comes to behavior, you should know that patience is among the top virtues that you need to work on.

Here are three results that will emerge from your financial patience.

  • You will have no debt. This is a dream for a lot of us – having no debt that can compromise our limited financial resources. When you are patient, you will not feel the need to use credit for purchases that you want to make. You can find it in you to wait so you can save up for certain expenses that can be availed in the future.
  • You will always have well planned purchases. Since you are taking your time, you will have well planned purchases. You do not have to rush through your spending. You will feel at ease in finding the time to plan when you can afford to make payments for what you want to buy. That way, you can set up your personal finances so that you are working for future expenses, and not slaving away to pay for past expenses. If you did not know, that is the scenario when you are in debt.
  • You can achieve your financial goals faster. Managing financial goals is no easy feat. But if you are patient enough to manage your finances wisely to avoid debt and to make smart purchases, then you will have more extra money to invest and grow your wealth.

Patience may seem like a farfetched virtue to be effective in improving your personal finance. But it will help you develop a lot of habits that will be beneficial to your pursuit of wealth.

8 Signs That You Need To Implement Financial Management

checklistFinancial management is a critical part of growing up. It dictates how well you are able to handle income and dispense the same for payments on your expenses and other loans. It restricts your purchases and tells you what is important and what can wait. It tells you as well what you can do to increase your income to meet financial targets. Financial management can also be a potent tool against debt.

This is important to share when there are about 20 million college students on an average at any given year according to Asa.org. That is a lot of college seniors entering the workforce where they will be earning on their own and experiencing life in full blast. The walls of their colleges and universities has now grown bigger to accommodate a lot more responsibilities. On top of these is developing financial management in running their money.

It starts with a desire to get their finances in order. There are still  a good number of Americans who are not able to balance a checkbook. The 410 (k) retirement fund, investments and emergency funds are alien to them. These are some of the foundations of financial management and college graduates and even some seasoned professionals needs to understand this to survive financially.

8 signs that you should start working on money management skills

As you go through life, there are pit stops where you need to make decisions and add some financial tools in your arsenal. Some of these can start as early as when you get your first job and for others, it could be as late as a few years before retirement. Whenever it happens, you should be able to discern these signs and know that it is time to work on your financial management skills.

When you start earning your own money

As soon as you leave university, the first order of business is not a vacation with your friends or a cruise with your partner. It should be to look for a job because your expenses and loan payments will not wait for your to finish a good time. If you have student loans, six months is a short time for a grace period and you need to start making payments after. Getting a place to stay, applying for utilities and others will require you to have a steady income.

When you get a job, income will not be too far behind. And when you start earning your own money, it is a clear sign that you need to implement proper financial management. This will put order in your finances and ensure that your monthly salary will not only last you until the next paycheck but will actually provide financial security for you in the long run.

When you already have a bank account

Forbes.com shared that there are about 7.7% of American households who still do not have their own bank account. That is approximately 1 in every 13 American families. There are mixed sentiments on how the banking system helps consumers but it cannot be denied that it is one of the safer ways to keep money and allow it to grow. When you open your own bank account, it is another step up  that needs proper management of your finances.

When you are saving for a goal (e.g. retirement, etc)

Having financial targets is another clear sign that it is high time for financial management skills. These can be in the form of emergency funds or retirement funds. In fact, there is only about 18% of Americans who are confident that they have enough funds for retirement according to Statisticbrain.com. Having financial goals is also a clear sign of financial maturity as you are already planning ahead and not just for the moment.

Here is a video explaining how saving for retirement might need to be done until 68 years old:

When you are responsible for paying monthly bills

Being able to pay for utilities such as water, electricity, phone, internet, and cable is another benchmark on the need to implement financial management. You need to be able to juggle your income with your expenses to avoid coming out short at the end of the month.

When you have started taking on credit

Taking on credit is another sign of financial maturity. Adding expenses on your card or taking out a payday loan to fix some part of the house needs proper management of finances. Without it, you might just end up in a store sale using up the loan you took out for another unnecessary expense.

When you start monitoring your credit

Monitoring your credit comes from the need to understand where you are putting your hard earned money. What items are you buying and where you can cut down on expenses. Financial management will help immensely at this point because it can provide a clear direction on how you can proceed after monitoring your credit.

When you  have started investing

Investment is a by-product of forward thinking and once you start delving into the world of investments, you will need financial management to guide you through your options. In fact, investing is one key to financial independence. It can help you plan for your future and hopefully retire at the time when you want to, not when you need to.

When you start paying your taxes

Making tax payments is a sign that you are already earning your own money. This calls for the need for financial management not only to monitor your income but to check as well if you are remitting the right amount for your taxes. Tax refund is a great surprise at the end of the year but it actually stems from wrong tax calculation. That would have been money you could have used for investment at the early part of the year. Instead of just giving the government an interest-free money, it could have earned a few dollars somewhere else.

4 important concepts of financial management

Financial management has four key pillars that consumers need to understand. It is beneficial to know these points in order to practice proper management of your finances.

  • Budgeting. Income has to be treated as the output of your hard work. You should put importance on how you use it and this is where budgeting comes in. Understand the important expenses and forego those that you can live without.
  • Saving. At this day and age, not a lot of people has an excuse not to save. Even technology has made saving easier. This is an important aspect of financial management because it allows the consumer to have funds for future use.
  • Smart spending. Similar to budgeting, spending smartly allows you to weed out your needs from your wants. It helps you identify and prioritize the important spending items in your budget.
  • Credit monitoring. It is important to be on top of your finances and monitoring your usage of credit can give you a great overview of your habits. Where you spend too much and where you can make improvements are just some of the advantages of checking your credit spending.

Financial management is an important tool in putting sense in your finances. Some people say that it is not how much you earn but how well you use what you have. This is where proper management of your finance kicks in. As long as you see the signs along the way, financial management can guide and steer you in the right direction.

10 Signs That Your Financial Management Skills Suck!

man looking frustratedDo you want to know how to improve your finances? Well you and a millions of Americans are after the same goal. We all had our finances suffer when the Great Recession hit and it was devastating to watch everything that we have worked so hard to acquire go down the drain.

We all blamed debt for most of our financial suffering. We thought that if we did not have debts, none of us would have gone through so much stress the way we did. While this way of thinking is sound, you need to realize that it is incorrect. Despite the obvious destructive effects of debt, the obvious culprit in our suffering is our own financial management skills. Or at least, the lack of the right skills.

According to a study done by CreditDonkey.com, the average income of Americans is $4,000 a month. Most of that goes to groceries, transportation, insurance, and housing expenses. Only 3% of the disposable income goes to savings and not even everyone can afford that. Low and mid income families usually cannot meet all the expenses so they are forced to pay for any deficit through their cards. The average is usually $58 a day. If you compute that, it amount to $1,740 a month – which is already 40% of the average income of Americans.

The way we spend our money, pay off deficit in our expenses and the little amount that we save is like a ticking time bomb. One glance and you know that there is something wrong with how we manage our money. It does not matter if you can earn more – if your financial management skill suck, then you will always be on the brink of a financial crisis.

10 reasons your money management skills will fail you

There are certain signs that will tell you if your money management skills is leading you to a disaster. You want to go through this list so you can be certain if you need to improve the way you manage your money.

Here are 10 reasons why your financial management skills put you in a compromising position.

  1. You do not have an emergency fund. Let us start with your financial security. One of the indications that you are financially secure is when you have enough money in your emergency fund. If not, then you know that you are in trouble. According to the latest Financial Security Index from Bankrate.com, 26% of the respondents in their survey said that they do not have any emergency fund. 24% has less than 3 months covers, 17% has 3-5 months and 23% has an emergency fund that is worth 6 months and more. If you are not part of the 40% who has an emergency fund worth 3 months or more in expenses, then you need to save more to secure your finances.
  2. You fail to keep track where your money is spent. Another sign that your financial management skills are not ideal is when you do not know where your money is going. Some people blindly pay their bills and daily expenses without really checking if they are able to pay off the priority. Even if you do not end up with a deficit each month, you need to track where your money is being spent. That is how you ensure that it is funding the expenses that matter to you.
  3. You have no idea how much you owe. As scary as this may sound, there are people who have no idea how much debt they have. This is dangerous because in most cases, they realize too late that their debts have grown into an amount that they cannot afford to pay back. Do not let it reach this point and just start monitoring all your credit accounts.
  4. You have a problem differentiating a want from a need. An important skill that you need to learn in financial management, that is admittedly quite tricky, is to distinguish the want from the need. The problem is, we try to justify the wants as a need. But here’s the thing. We want a big house but all we really need is a safe and comfortable home. We want designer jeans and dresses but all we really need are decent clothes. Learn how to prefer the essentials.
  5. You cannot say no. We’ve written an article that discusses how saying no can save you from a financial crisis. There is so much truth to this that  you need to really learn how to say no. That means saying to to your friends, family and even yourself. Helping is good but make sure you are not giving them the easy way out. They have to learn from their mistakes and instead of giving them the quick relief, guide them as they go through the painful process of saying no. In the end, you are not only helping them, you are also protecting your finances from being compromised.
  6. Your expenses are bigger than your income. If your expenses are bigger than your income, then you know that your financial management skills need improvement. Try to lower your expenses by cutting back on those that are not necessary. Live within your means because any purchase in excess of your income is done through credit.
  7. You always spend using your credit cards. Now that we have mentioned credit, let us discuss credit cards. It is not bad to use them but you have to learn how to use them properly so you do not end up in debt. Make sure that when you use it, you have the cash on hand to allow you to pay for it in full at the end of the month.
  8. You only pay the minimum requirement. In connection with the last, if your credit card payments are only based on the minimum requirement, you should know that it is also a sign of bad financial management skills. This payment method will keep you in debt for a very long time. So pay more than the minimum and if you cannot do that, then stop using your credit cards for the meantime until you have paid off your balance.
  9. You compare what you have with others. Another bad habit that could lead to your financial disaster is always comparing what you have with others. Their life is not the same as yours. It may be true that you have the same position and earn the same amount of money but you financial obligations might be different. You see them sporting new cars but that may be because they already have investments in place to help them afford it. Just focus on what you need and not what your neighbors have.
  10. You are not paying attention to your credit report. Lastly, not checking on your credit report is a big mistake for a lot of people. Some have gone through life with no debt or have made wise financial decisions but since they failed to check their credit report, they did not see that they were victims of identity theft. Unknowingly, someone got your details and borrowed huge sums of money under your name. If you fail to spot that in time, you could end up paying for all of that yourself.

5 steps to improve how you manage your finances

If you are guilty of any of these signs, then it is a must that you work on your financial management skills. In case there is a need to improve your habits, here are 5 things that you can do.

  • Improve your financial literacy. First of all, you have to be able to identify the mistakes before you make them. This can only be done if you are aware of what is right and wrong. Improve your financial literacy by reading about personal finances. You can start by visiting Consumer.gov – especially the part about managing your money.
  • Set up financial goals. Once you have educated yourself, set financial goals that will lead you towards a more prosperous financial standing. It can be as simple as growing your money up to $X amount or buying your own home.
  • Create a budget. When you have your goals, you can work on a budget that you will follow each month. This budget plan will not only help you practice financial management, it will also help you setup your finances so you can reach your financial goals.
  • Identify the habits that are sinking your finances. Obviously, you need to stop those bad spending habits in order for you to keep a tight lid on debt. Other habits that you may want to correct includes failing to check your credit report, not saving enough for retirement, etc.
  • Stop acquiring debt and pay off existing credit. Lastly, you want to make sure that any debt that you have will be paid off and you will also stop acquiring unnecessary debt. This will help maximize what limited resources you have each month.

Here is a video from HowCast that teaches how you can avoid credit card debt.

Are You Smarter About Personal Finance Than 16-Year Olds?

woman thinkingOne company recently tested 16-year olds on their knowledge of personal finance with some everyday questions about savings, tax, currency exchange and utilities. Almost a third of those tested scored 43% or less in this test.

Test yourself

Here are the seven questions that were asked. See how many you can answer correctly (answers at the end of this article).

1. Kat paid $5,000 for a car in April 2009. In the first year, the value of the car depreciated by 10%. In the second year, the value of the car depreciated by 15%. How much can Kat sell the car for in 2011?

2. Bob is paid $37,465 a year. His personal tax exemption is $6,000 for the year. If Bob’s income is taxed at 22%, how much income tax does he pay in a year?

3. Leonie has $2500 to invest for four years and can choose between two different savings accounts. Account One pays 3.7% simple interest paid out at the end of each year. Account Two pays 3.4% compound interest paid at the end of each period (year). Which account would give Leonie more interest over the four-year period?

4. Jenny wants to buy a new TV but is $300 short. She sees an advertisement for a loan offering $300 for eight months with a monthly repayment of $50. If she takes the loan, how much extra will she have to pay?

5. Andrew pays his electricity bill monthly. His current charge is $0.046040 per kWh. Last month he consumed 1201 kWh. If next month he reduces his electricity usage to 1100 kWh, how much money will he save?

6. Rachel is going on vacation in Spain and needs to change $300 into euros. The change kiosk in the airport charges 0.6% or $6.73 to change money whichever is the greater. How much will changing her money at the airport cost Rachel?

7. Sophie was left $6,000 by her grandfather and decides to invest the money for two years. Her bank offers her a choice of two savings accounts. Account One pays 3.1% on a monthly basis. Account Two pays 3.25% annually. Which account will give a higher closing balance with no withdrawals?

Understanding personal finance is critical

You’ll see in a few moments as to whether you’re smarter than a 16-year old about personal finance. I certainly didn’t know much about personal finance when I graduated from college and got married. I had worked fairly constantly since I turned 16 and about all I knew was that you should spend less than you earned. Of course, when I was in college I didn’t always follow that dictate. There were many times when I ran out of money before I ran out of month. I did finally learn the importance of spending less than I earned but it took several years for me to learn some of the important basics of personal finance.

1. Learn your spending patterns

The first step in becoming good at personal finance is to determine how you spend your money. I learned that the only effective way to do this was to track our spending for at least four weeks. This meant keeping track of not just the big stuff like rent and groceries but also the very small stuff right down to a candy bar I had at work. I did this the old school way with a notebook and a pencil. Today, thanks to all of the smart phone apps available, this is much easier. For example, if you were to choose Mint.com it would not only track your spending for you but also categorize it so that you would be able to see exactly what you spent in areas such as groceries, dining out, utilities, clothing, hobbies, transportation, healthcare and so forth.

2. Compare this with your income

Once you see what you spent in the past month you need to compare this with how much you earned. When you do this you might be in for either a shock or pleasant surprise. The pleasant surprise would be if you spent less than you earned and had extra money to save or invest. The shock would be if you find that you spent more than you earned. If this is the case, you will need to review all of your spending categories with an eye towards determining where you could make cuts. As a rule, most people find the easiest places to reduce their spending are groceries, clothing, entertainment and dining out.

3. Save more by creating goals

Most people find that it’s tough to save money just for the sake of saving money. What’s better is to create one short- and several long-term goals. As an example of this, your short-term goal might be to take a nice vacation to Florida next spring while your long-term goals might be to buy a new car or to save enough for a down payment on a house. Whatever goals you create, you might spreadsheet them so that you will be able to see the progress you’re making towards realizing them. This can be a great incentive to stay on track in your saving.

4. Read books about personal finance

Assuming that you don’t have a financial mentor, the best way to get a better understanding of personal finance is to read some books. We like The Money
Book For The Young, Fabulous And Broke by Suzy Orman; the classic Think and Grow Rich, by Napolean Hill; Get Rich Carefully, by Jim Cramer; Rich Dad, Poor Dad, by Robert Kiyosaki; and today’s best-selling book on personal finance (according to Amazon), The Total Money Makeover, by Dave Ramsey.

5. Get a mentorcouple talking to a professional

The best way to learn about personal finance is to get a mentor – someone who has been there and has learned how to manage, save and invest money. If you’re fortunate, this person could be your father, an uncle or a cousin. Barring this, you’ll just need to be on the lookout for someone who is a successful money manager, who is well to do and would be willing to mentor you. Just make sure that you don’t come off as too “needy.” In other words, don’t pester that person with several financial questions every day. When you have a question about personal finance, write it down and start a list. Once you have a half dozen or more questions, you could then ask that person to sit with you for a half an hour or an hour to answer them. But try to not do that more than maybe once a month.

The answers to our seven questions

If you’ve been chomping at the bit to see whether or not you’re smarter about personal finance than a 16-year-old, here are the answers to the seven questions we posed at the beginning of this article.

1. $3825
2. $6,922
3. Account #2
4. $100
5. $4.65
6. $18
7. Account #1

So how did you do?

If you were able to answer all seven of these questions correctly, give yourself a big gold star. And congratulations! You’re officially smarter about personal finance than the 16-year-olds who were tested on these questions. On the other hand, if you were able to correctly answer only two or three of them, you need to get to work and read some of the books about personal finance that we listed above. Think of it this way. It might take you several weeks to read one of those books but it could make the rest of your life a lot better. If your personal finances are not currently under control, this would help you better manage them. You would be saving money each month towards your important goals. And it’s likely that this would take much of the stress out of your life.

5 Tips When Your Income Is Not Enough

man looking stressedHave you ever felt that your income is not enough to supply for all of your needs? With the rising cost of living and the low wages, you must be feeling a lot of frustration as you face bills every month. You think that this is a sentiment that most people living in poverty have right?

That is where you are wrong. If you are looking to ways to increase your income to get out of the rut, then you might want to rethink this solution first. Believe it or not, sometimes, even earning more money is not the right way to solve the discrepancies in your budget.

Truth is, regardless of the income that you are taking home, there are instances when you still feel like your salary is really not enough. Even those who have 6 figure incomes sometimes admit that they feel like their paycheck falls short of their real needs. When payday comes, you hardly feel the money stay in the palm of your hand. In most cases, you have divided it into different expenses even before you have withdrawn. That can be quite discouraging if it happen month after month.

Increasing your income is not always the solution

If both low and high earners feel like their income is not enough, then you know that no matter how much you earn, it will not solve the problem that you face.

In a study done published on the site of the National Center for Biotechnology Information (NCBI.NLM.NIH.gov), it is revealed that it is true that as income increases, the hardship decreases. However, it has to be noted that the decrease is not as significant compared to those in the highest income bracket. For those who come from low income households and sought to increase their income, the study observed that the amount of parent stress also increased.

While you may feel like adding more money in your monthly cash inflow will help, there are sacrifices along the way that you have to accept. Let us enumerate some of them.

  • You sacrifice your time. Unless you are able to effectively set up a passive income business, you need to take into consideration the time that you need to invest in that additional work. You will be sacrificing what limited time you have with your family and even yourself if you work longer hours.
  • You sacrifice your physical body. Work, regardless of what type it is will take its toll in your body. You may be solving the problem about your budget but it could increase your health expenses in the future.
  • You sacrifice your relationships. When you increase your income, another sacrifice that you have to make is on your relationships. Even if you provide for your family, your presence is needed in their lives. Failure to make that happen can lead to the destruction of your relationship with the ones you love.

These sacrifices can all lead to the stress that can ruin your life in other areas. You may be saving your financial life but end up losing in others.

When the income is not enough, there is evidently a problem with the current financial situation. It is not right that you go right ahead and increase the income. It is like pumping air in a flat tire that keeps on losing it. You need to find the hole and patch it up before you add more air into it.

We are not implying that increasing your monthly cash is not good. It is still good in a lot of ways because you are being proactive about building your wealth. However, we just want to point out that doing so is usually not enough. While there may be cases wherein earning more is the solution, it is oftentimes partnered with something else.

5 ways to change your mindset about your paycheck falling short

In most cases, the problems lies in the financial habits that you are implementing in your life. If you know that the problem is in the habit, then you should check certain mindsets that might be influencing you to act the way you do.

If you don’t believe in the power of the mind, you have to at least try it before you turn your back to it. There are scientific experiments that prove that your thoughts will manifest itself into the physical world. In an article published on TheMindUnleashed.org, Dr. Masaru Emoto showed evidence that our thoughts can influence what is tangible around us. In a rice experiment, he placed cooked rice in two containers and had school children read out the labels on each of the containers every day. After a month, the rice in the container labeled with “you fool” became rotten. The one in the container labeled “thank you” barely changed after 30 days.

Having said that, you need to understand that if your income is not enough, you should focus on changing your mindset about money. That may be the reason why your financial situation is all rotten.

Here are 5 of the common mindsets that you need to change in order to improve your financial situation.

  1. Focusing on what you do not have. We are all consumed with the need to acquire something new. This is why retail therapy is real – albeit quite a dangerous stress buster. Although it feels good to know that we can buy anything that we want, it always makes us focus on what we do not have. That mentality will really impress on you that your income is not enough. So to change that, make sure that you keep your eyes on what you already have. That will make you more appreciative of what you have.
  2. Upgrading your lifestyle after a paycheck raise. Another mindset that you have to change is immediately upgrading your lifestyle once your income increases. The typical American spending habit is not just overspending. It is also the habit of raising the standard of living according to the income bracket. While there is nothing wrong with that, it removes the breathing space that should have been there to keep you from thinking that your income is not enough. In some cases, we even exceed the upgrade to go beyond the actual increase in income. That puts us in situation that can lead to debt accumulation.
  3. Failing to search for alternatives. When you go out shopping, do you keep your eyes on what is on your eye level or do you look below the racks to search for the low price items? If you are the former then you most likely fail to search for the cheaper alternative to your needs. There is always a cheaper way to do things. In some cases, it involves learning new skills. Think about it before you start increasing your income.
  4. Keeping our eyes onto our neighbors. In an article published on LearnVest.com, they discussed that there is proof that your friends can hurt your finances. At least, if you constantly look at your neighbors and compare your life to them, you will never be satisfied with what you have. You will always look at what is new to them and it will keep you feeling like you are always lacking. Stop this mentality and just focus on what you need – not what your neighbors have.
  5. Cutting off the wrong expenses. Cutting back on your expenses can help but only if you cut back on the right ones. Some people think that completely removing entertainment expenses will help them but that only brings forth a feeling of deprivation. And when you are feeling deprived, you feel like your income is not enough. Be wise about what you will cut back on so that you will not feel miserable about your financial situation.

Obviously, it all boils down to how you will budget your money. You can actually live debt free on a $30,000 a year income but you have to make sure that you are implementing the right habits. That will keep you from doing wrong – regardless of how much money you are taking home every month.

When your income is not enough, you have to take a look at your budget to see where your expenses are going. This is how you begin to determine what you are doing wrong. Here is a video from National Debt Relief that will teach you how to create a budget.

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