Finances

6 Effective ways you can simplify your financial life

Today’s post is contributed by Amy Nickson, a passionate writer on finance. Amy is a professional blogger who has started her own blog and also works as a contributor for the Oak View Law Group. Please share your opinions by commenting below.

Everybody says, declutter your finance to ensure a secure financial future, but nobody says how to do that.

Well, it is true that the simpler your financial life is, the more secure financial future will be.

But, the problem is, finance is one of the most complicated subjects in our life. It is not easy to make it simple. You need to be determined first before simplifying your financial life. Because you may need to follow some ways that can be difficult at the beginning.

Here are 6 ways you can simplify your financial life easily:

1. Consider a frugal lifestyle

Frugal living is the process that helps you to learn live on less. It doesn’t mean that you will have to give up all the luxuries of your life. Frugal living is about getting the maximum value for your money. Being frugal doesn’t mean that you’re depriving yourself, or you have to sacrifice all stuff you like. It is just giving up the impulse buys and trying to lower the expenditures wherever possible. You will also be able to learn how to differentiate between the needs and wants. Often people get into the mindset of impulse buying for pleasure or minimize the stress level. Being a frugal person, you can become a wise spender and will no longer find happiness in impulse buying. This way, you can become a financially responsible person.

2. Cut down multiple credit cards

Credit cards are the convenient tools that can be used to buy things easily. These days, reward credit cards are becoming popular among people. To get bonus points, cash back and rebates, people are now a huge fan of reward credit cards. But, do you know that these reward cards are nothing but marketing gimmicks created by the credit card companies to force people to become impulse buyers?

Thus, it is advisable to cut down multiple credit cards. Use your credit card only when you are sure that you can make the payment within the stipulated time. By doing so, you will be able to avoid accumulating painful credit card debts. Thus, you can move ahead to a peaceful financial life.

3. Use cash as much as possible

Today’s technology makes our life cashless, which is not a bad thing. We are using e-wallet, online banking services, online shopping etc. to make our life more convenient. But going cashless doesn’t mean you can spend money meaninglessly. Sometimes, virtual banking or shopping makes people forget about their affordability. As I said in previous points, people use credit cards randomly without knowing how they can repay the bill on time. Thus, most of the financial experts now recommend people to use cash whenever possible.

Cash plays a vital role to simplify your finances. If you are an impulse buyer, who always fails to stick to the shopping list, then next time carry cash that you would need; doing so, you will not overdo with shopping. Because, when you have a certain amount in your wallet, you know how much to spend. If you can’t resist buying a thing and you see you don’t have enough money in your pocket, you will not be able to buy that. This way, you can stick to the shopping list that you are supposed to do without going spendthrift.

However, it is true that carrying cash is risky to some extent. But, you can use checking account where you can deposit the cash and use whenever you need.

4. Build an emergency fund

Why will your financial life get messed up every time? If I am not wrong, every time when an unexpected emergency came in the past like your son broke his leg, car died, thermostat needed a replacement, you were like “where to get money”. To overcome the situation, either you used your credit cards or took out the costly payday loan.

Thus, you may meet the financial need but you dug the debt hole.

I am not saying that using a credit card for a definite purpose is wrong, but if you don’t make the payments on time, you will be in debt soon, as I said earlier.

Payday loans are more dangerous; they come with high-interest rate and you have to pay back the money after you get your next paycheck. If you don’t, you will be in debt cycle. In addition to this, most of the online payday lenders are tribal or illegal; they can grab your personal information to pull out all the money from your bank account.

Thus, it is advisable to nurture an emergency fund to combat with all the emergencies that come your way. If you lose your job or want to switch a job, the money in your emergency fund will give you a sense of confidence. You don’t need to take out a loan or accrue debt to meet your needs.

However, you should have at least 3-6 months salary in your emergency fund to strengthen your financial backup.

5. Pay off all your debts

Debts are messy and clutter your financial life. Thus, you should pay them off to simplify your financial life. Well, accumulating debt is easier than paying them off. To do so, you have to follow some debt relief strategiesDebt payoff strategies are not simple, you may feel overwhelmed. Thus, it is important to analyze your debt status and income before choosing a debt relief method.

If your life is too stressed out for multiple debts and you need to get rid of them soon, then go for debt consolidation or settlement. However, to do so, you need to have a good income flow.

If you have debts that you can manage yourself without taking help from professional debt relief companies, then you can go for debt avalanche method.

In this method, you need to target the highest interest rate debt first. Make more than the minimum payments toward the highest interest rate debt while making the minimum payments on rest. Continue the process until all the debts are paid off.

By doing so, you don’t need to pay the fees to a third party company to get rid of debts.

6. Save money rigorously

The more money you save, the less financial worry you will have in your life. And the less financial worry, the easier to simplify your financial life.

Thus, financial experts say that you have to save money, since it is important to secure your financial future (like retirement), fund your child’s education, and pay your medical bills.

So, try to lower unnecessary expenditures to save your hard-earned money.

Contribute to a 401(k) account for retirement, open a 529 college savings plan for your child education, and nourish an HSA (Health Savings Account) for medical cost.

Also:

  • Save money by using coupons.
  • Set aside a certain amount from your monthly budget.
  • Try to save money on food by using the leftovers to make a new dish and eating at home.
  • Save money on gifts by making DIY goodies.

These are all small initiatives that create an effective impact to simplify your financial life. Try them out and let me know how they work.

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Month 6 Review What You’ve Done

You have made it to month 6, now it is time to review what you have done in the past 5 months. Write out all of your accomplishments. Redo net worth and cash flow worksheets using your current information. Compare the results with those from when you began six months ago. You will feel better knowing you are in control of your money and financial life. That provides the motivation to make your money diet an automatic part of your life. Now you won’t mind getting on those money scales we talked about in month one.

Join me tomorrow for a guest post from another personal finance blogger and after that, we will move to home buying tips for the rest of #bloglikecrazy

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Month 5 Insure The Future

Make sure you and your assets are protected. Insure your future

 

The best financial plan can be ruined if catastrophe strikes. I’m sure you don’t want that after all this hard work you have put in getting on track. You have to protect your income and assets with insurance. You must insure the future at all costs. Here are a few types of insurance you may want to invest in.

Disability

Buy as much disability insurance as you can afford. Be sure the policy provides benefits until you reach the age of 65 or for life. Make sure that it covers you if you can’t work.

Life Insurance

Nothing disturbs me more than to see a go fund me account for burial expenses. I don’t care how old you are, you need life insurance. If you have children, they need it too. The rule of thumb is to have coverage that equals five to seven times your annual income.

A term policy is often best for people in their 30’s who have young children and need a lot of coverage but don’t have a lot of money for premiums. Term insurance will cover you for a set number of years but gets more expensive each time you renew the policy.

Cash-value insurance is ideal for those who can afford coverage for 20 years or longer. Part of cash-value premiums grows tax-deferred.

Homeowners Insurance

This policy should cover what it would cost to replace your home and personal property now. Don’t own your home? No worries, get renters insurance. This will at least cover the contents (your belongings) of the house or apartment you rent.

Automobile Insurance

Liability coverage is key, so make sure you have enough. This is the mandatory coverage set forth by your state. For both comprehensive and collision coverage, take the highest deductible with which you feel comfortable.

Consider dropping comprehensive and collision if your car is more than 5 years old and has lost most of its value.

Estate Planning

If you don’t have a will, a power of attorney and a living trust, see an estate attorney. Preparation costs range from $500 to $2000 or more, depending on the complexity of your estate. If you already have these documents, review them and make any changes needed to bring them up to date.

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Month 4 Taxes And Investments

Save on taxes and invest conservatively in month 4. Learn how to make your money work for you

 

Continuing with our seriesSix Months to Financial Fitness, we’ve moved to month 4 where we will take a look at taxes and investments. This is a simple task for month 4 but is very necessary. This month, I want you to review every item on last year’s return to see how you can cut your taxes.

Taxes

Keep track of deductions, especially those for cash expenditures, such as mileage, faxes, photocopies and charity. It all adds up and every little bit is a big help.

Contribute the maximum to tax-deferred retirement plans.

Investments

Consider your investment strategy. If you’re intimidated by the market, start with an index mutual fund. One that conservatively invests in stocks in the S&P 500. You can move on to other kinds of mutual funds later.

Be sure to come back tomorrow for month 5 where we will talk about insuring your future.

 

 

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Month 3 Reduce Expenses And Debt

You have to reduce your expenses and debt in order to gain lasting financial controlMonth 3 is crucial. This is the first month you’re going to make changes. The main thing to remember when you reduce expenses and debt is to not make any unrealistic spending cuts at first. Pick four or five problem areas, such as restaurants, clothes, and hobbies. Work on reducing a couple of expenses each month.

Get in the habit of smart spending, making decisions before you spend. Ask yourself, “Is what I want to purchase worth the money I lose for my family’s and my future goals?”

Start Reducing Debt

Avoid making only small minimum payments on credit cards. It can take up to ten years to pay off your current balance. If you charge $30 for dinner, deduct that amount from your checkbook when you get home. Pay the full amount on your credit card bill when you receive it. This strategy will make you think twice about casually dining out. Also, ask credit card companies to reduce your interest rates and forgo fees.

Begin paying regular expenses automatically. Have expenses, such as insurance premiums deducted automatically from your paycheck or bank account.

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Month 1 Get On The Financial Scales

If money were pounds, how would you fare? Ok if you are in England money is pounds. No Matter where you are or what you call money, get on the financial scales and see your money weight.

I know some of us may need more than 7 days to get our finances in order. Some of us may want to take a more calculated approach. If you want something more calculated then this series, Six Months to Financial Fitness is for you. Over the next six day’s, you can see how in the next six months you can be on the road to financial freedom. The first month, you need to get on the financial scales. I know if you are like me, the scales are not your friend. Good thing we are not tracking pounds because that scale is not for me.

It’s no wonder that we’re all so worried about money, We’re living longer, retiring earlier and expecting more out of our retirement. At our high rate of spending and low rate of saving, 75% of us will retire with less than half of what we need. The key is to do something about it now.

Month 1 Get on The Financial Scales

Create an overview of where you stand financially by creating net worth and cash flow statements

Net Worth

Set up separate folders for your bank, investment accounts, credit cards and any real estate and cars that you own. Make up a worksheet. On the left side, list the fair market value of your assets.

Example: Estimate conservatively what you could sell your how for today (not what you would like to get for it). Add up the numbers. The result is your total assets. On the right side, list your liabilities, including mortgages, credit card balances, car loans and other debts. The result is your total liabilities.

Your net worth: Subtract your total liabilities from your total assets. This is your net worth

Cash Flow

Once you have calculated your net worth, determine how you are spending your money on a regular basis.

How To: Set up another worksheet. On the left side, write the 12 months on separate lines, starting with the current month and going in reverse chronological order.

Make two headings at the top of the page: Total Monthly Deposits (credits) on the left side and Total Monthly Withdrawals (debits) on the right side

Step 1: Gather your bank statements for the last 12 months. Under each column on the worksheet, fill in the deposits and withdrawals month by month. Add the columns to get your yearly credits and debits.

Step 2: Subtract from both columns, the annual amount withheld for Social Security and any income taxes paid by check in the last 12 months, This process provides you with a more accurate indication of your spendable income and those expenses over which you control. Add to both columns all other nontax expenses withheld from your paycheck, such as company insurance premiums.

Step 3: On the credit side, add savings and retirement-plan contributions withheld. On the debit side, either add or subtract the increase or decrease in the amount of your consumer debt during the past 12 months.

Step 4: Examine the results: your after-tax annual income and total annual expenses. Income must exceed expenses, or you are heading for financial trouble.

Here is a strategy for you, track your weekly expenses in detail for the next five months to find out where your money goes. I know five months in a long time, but I promise you will be better off financially for doing it. Write down every cent you spend in a small notebook. Don’t try to do anything about the pattern at first.  For those following the six-month plan, it’s best to take at least two months to begin to change your spending habits

 

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Develop A Debt Reduction Strategy

Don't forget to develop a debt reduction strategy while you are getting your finances in orderWe are rocking and rolling our November in order to set ourselves up for our best financial year in 2018! Today I want us to take our 20 minutes to develop a debt reduction strategy.

Now that you have figured out how to spend less than you earn, you may be wondering what to do with that extra money you are saving. I would suggest paying off any lingering debt. There are a couple of ways you can do this.  You can start with the debt’s that charge the highest interest rates. This is normally your credit card bills.

Set target dates for when you want each debt to be paid. Don’t be too ambitious or you will set yourself up for failure.

Below, I have attached a live stream masterclass that I held earlier this year. It has some great strategies for you to reduce your debt and start saving. Be sure to take a look at it and let me know what you think in the comments.

This is day 5 so we have two more days in this series. Come back tomorrow when we will establish a savings plan.

 

Death To Debt Masterclass

Simple debt reduction strategies for do-it-yourself debt reduction

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What’s Your Plan

Do you have a plan to get your finances in order or get out of debt? If not, you need one. So what's your plan?

 

So how’s it going with getting everything squared away? Are you taking the 20 minutes per day to get your finances in order? I know it is a daunting task, but if you want financial freedom you have to take control of your finances.

Moving on to the next step of taking control. You need to devise a plan for living beneath your means. While reviewing your finances did you find any areas where you could reduce spending? If so, start there. Reduce your monthly expenses so that you spend less than you take in. Often times, people ask me how much they should cut back. While there is no right or wrong answer, I use the example. If you are adding $500 a month to paying off your credit card balance, then you have to cut $500 a month from your spending just to stop your finances from deteriorating.

Using the example above, even if you manage to find $500 you are still not making progress. The rest of the solution is for you to cut MORE than $500 to get your current debt under control and start building your savings.

Todays 20 minute assignment: Make a list of all of the expenses you are eliminating and how much you hope to save. I’d love to know what you plan to eliminate. Leave me a comment below and let me know.

Be sure to come back tomorrow so that we can begin developing a debt reduction strategy.

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Day 3 Categorize Your Expenses

If you really want to take your finances to the next level, then you need to categorize your expenses

Hey Hey!!!! We are rocking and rolling with our finances! Have you organized your finances and found out where your money is going? If so then you are ready for the next step, categorizing your expenses.

If you want your finances to be effective, then you need to organize them in a way that is easy to understand. Here is the most basic way to categorize your expenses. You can slot them into one of the following three categories.

  • Regular payments that you have to make, such as, your mortgage and utilities
  • Expenses you must incur but that could be reduced, such as food, clothing, and transportation
  • Expenses you could eliminate entirely, such as eating at restaurants, going to concerts and frivolous shopping.

In the last two categories, you will find many areas in which you can cut back. It is all about setting yourself up for financial freedom and making 2018 your best financial year yet. Here is your 20-minute assignment for day 3, categorize your expenses.

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Day 2: Figure Out Where Your Money Goes

Tracking your spending helps you figure out where your money goes

I hope you are excited about these seven day’s, I sure am. Yesterday we gathered all of our financial records to get them organized. Now that we have all of our financial statements in front of us, it is time to figure out where our money is going. We can’t stop the leaks until we find out what and where they are.

Have you ever asked yourself, where does all my money go after paying bills? If so then you are not alone. By compiling your financial statements you are ready to prepare a summary of your monthly expenses.

Day 2 Figure Out Where Your Money Goes

Make a list of all of your expenses, right down to the smallest item. Pay real close attention to exactly where your cash is going. Oftentimes, you will find a lot of room to cut back in certain areas. If necessary, keep a journal for a day or two and write down every purchase you make. I realize this may be tedious, but you will reap so many benefits from doing so. One such benefit is quickly realizing what you waste money on.

Another reason to track your expenses is that it will help you figure out if you are living within your means because it holds you accountable for every penny you make and spend. You will know exactly how much you spend on both needs and wants and whether or not you are living within your means based on how much of your income is spent on both.

This is the first step in gaining control of your finances. I can’t stress enough how important it is to know where your money is going.

Another 20 minutes down and another 20 minutes closer to financial freedom. Now that we have organized and figured out where our money is going, come back tomorrow so we can categorize your spending.

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