A strategy is a detailed planned course of action created to achieve a specific goal or aim. Strategy, in business as in war, is often the difference between the successful and the struggling, the conquerors and the conquered. That being said, developing and executing a plan of action to achieve your financial goal is often what sets you apart from those who struggle financially.
“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” Sun Tzu
Here are oft-ignored but effective strategies you’ll do well to implement to get ahead with your finances.
- Paying yourself first
In that classic of financial literature – The Richest Man in Babylon – the first and in my opinion the greatest lesson Clason thought was “Start thy purse to fattening” or, in other words, “pay yourself first.” Now, this doesn’t mean that you should start eating out at that fancy restaurant every other day or spoil yourself with funny-looking and unfortunately expensive luxury goods once you get paid. Paying yourself merely means to set aside some amount of money from your paycheck before you start spending it.
Sounds easy right? Well, for most people, the issue is that by the time they have settled utility bills, shopped for groceries and paid their rent, there won’t be anything left to save. And the same thing will likely play out when the next paycheck comes.
If you fall into the above category, either you haven’t discovered this powerful strategy, or you have read it up somewhere but find it difficult to implement.
Either way, waiting to save what is left over after discretionary and mandatory spending – paying yourself last – is no way to grow rich.
Why is it so important to pay yourself first?
By paying yourself first, you are ensuring a financially secured future. You can build up an emergency fund; save up down payment for a home; contribute substantially to your retirement account or achieve any other set financial goals.
Daily expenses and cost of living are some of the challenges of adopting this powerful but straightforward strategy. However, the earlier you get into the mindset of paying yourself first, the better for you. Apart from taking advantage of compound interest, you are already funding your goals before life gets in the way. A medical emergency, major car repair or any other unforeseen expenditure could possibly throw your financial goals off-track if you procrastinate on this.
One way of transitioning into the pay-yourself-first mentality is by automating the process. You can instruct your employer to make a direct deposit into your retirement account from your pay before it hits your checking account. You can also request that they transfer a set amount into other accounts marked for specific saving goals.
The amount you decide to save should be based on your savings goal and your budget. Taking stock of your recurring bills and other monthly expenses will help you get an idea of the extra money you can set aside for saving.
Also, look for areas where you can cut back on costs. Like a cable subscription you hardly watch or magazine subscriptions that you never read, and transfer that money to your pay yourself first account.
What if you are self-employed?
For freelancers and those running their businesses, it’s not easy to save a fixed amount every month when you don’t know how much you may take home that month. A way to overcome this challenge is by keeping a percentage – say 5 percent – of whatever you earn monthly.
The core principle behind this strategy of paying yourself first is making your long-term financial health a priority ahead of most other financial demands.
In the end, you are your own biggest and most valued asset.
- Stop using your credit cards
Credit cards are useful tools in some circumstances. They let you spend money you don’t have and help build your credit score. However, it requires a lot of self-control to use them judiciously.
It’s often too easy to fall into the trap of using your credit card to tide you over till the next payday. Relying so much on your credit card adds to your debt every month. And since they cost quite a lot in interest payments, they make it difficult for you to build wealth. Therefore, a necessary strategy to improve your finances is to eliminate the use of credit cards.
So how do you go about stopping the use of credit cards?
- To start with, look closely at your income and your expenses. You have to keenly track your spending habits to see where your money goes. This will help you to change the habits that lead you to use credit cards in the first place.
- Create a budget with reasonable limits for all your expenses. Then ruthlessly follow and track it. You may consider using cash so that you don’t overspend at the start of the budgeting cycle.
- Leave your cards at home. Not having the option of using your credit cards when you go out will help wean you off them. Also, you can make it difficult to access them. Delete the card numbers from your favorite online stores to make it harder for you to shop on a whim. Once you have paid them down, you should go ahead and close the credit cards.
- To avoid using your credit cards for an emergency, start saving some funds for an emergency. The rule of thumb is an emergency fund of up to three to six months of your expenses. Emergency funds can help you get out of debt as well as prevent you from dipping hands into your savings.
- Lastly, you can refinance you high-interest balances with a new card with lower rates. This will speed up the process of eliminating credit card usage. However, you have to be careful not to use the new cards for additional spending.
Credit cards are not all that evil; they are just easy to mismanage.
You should quit using them if you observe any tendencies in you toward overspending. With some determination, you can put an end to your unhealthy reliance on credit cards.
- Maximize your retirement contribution
In your twenties, it may seem that retirement is a lifetime away. You, therefore, prefer to put in the minimum contribution required by law towards your retirement savings.
You have many needs for money right now other than putting it aside for a time that will take infinity to come right? Unfortunately, as many retirees have learned the hard way, it ’s not always easy to meet up when you are just about to retire and discover that you are several hundreds of dollars away from your target.
There are many advantages to maximizing the amount you put away for your retirement which is at present is $18,500 if you’re below 50 years. For one, the amount saved is tax-deferred, and you also gain tax benefits for your contributions.
Therefore, once you pay your bills, meet your expenses, have adequate insurance, some cash for emergencies, and you’re on track for other short-term financial goals, you should channel the rest towards your retirement savings.
- Find a better job
This is a no-brainer. Sometimes, quitting your current job for a better, higher paying one is all you need to make significant financial progress. That is if you don’t succumb to lifestyle inflation.
While a high paying job does not necessarily translate to a better job, there are still jobs out there that can offer you better job satisfaction as well as better pay.
Taking and working a job you love will help you develop yourself professionally; endow you with confidence and a positive mindset and advance your growth with regards to skills, knowledge, and consequently, your finances.
Most people put great strategies together but never follow through and more often than not, this effort goes to waste. To successfully execute the above strategies, it takes a lot of self-discipline and focus. Focus on your financial goals and be persistent. You will be rewarded.I
Bio: Bernz JP is the blogger behind Moneylogue.com. BA in Accountancy, he entered the entrepreneurial world by starting his first online marketing business in 2004. Passionate about personal finance, the stock market, and a digital marketing addict. He’s also an avid golfer and currently a 15 handicapper.