In the hustle-bustle of today’s life, it is challenging to keep track of everything. From preparing grocery lists, decluttering the house, and fulfilling work obligations to handling expenses, people simultaneously manage multiple things. In addition to routine chores, staying on top of finances remains everyone’s utmost priority.
Do you have a habit of overspending money? Almost everyone runs out of cash before the month-end because of inadequate financial management. Some people are impulse buyers, while others have countless deductions from salaries – insurance, pension, unemployment benefits, not making room for personal expenses. Unsurprisingly, a healthy financial standing is imperative for progressing through different life stages.
Whether you are working for an organization or self-employed, streamline your finances. Keep an eye on your savings, expenses, tax obligations, and investments. Likewise, if you have taken any loans, go through the changing interest rates and banking regulations. With increasing economic uncertainty, it is high time for everyone to have a strong financial footing. In case you struggle with financial planning, let us assist you in this regard. Here are five easy steps to successfully manage your finances.
1. Fulfill Taxes Obligations
Before anything else, fulfill your legal obligations. In the 21st century, every person earning a reasonable amount of income is liable to pay taxes. If you are working at an organization, the employer automatically deducts taxes from your annual or monthly salary. Otherwise, if you are an entrepreneur or a freelancer, you have to pay self employed taxes to the government.
Since the current self-employment tax rate is 15.3%, you have to deduct it from your total annual income. Undoubtedly, tax calculations can be quite tricky, especially if you don’t have any know-how about return filing and withholding taxes. Therefore, it would be wise to leverage an online tax calculating tool. All you have to do is record income, expenses, and it will unfold all tax obligations.
Firstly, you will learn about the taxes you owe and their federal and state filing deadlines. Likewise, it would generate detailed tax reports while tracking expenses to find deductibles. In addition to avoiding legal troubles, you can reduce the taxable income.
2. Consolidate The Debt
Bank loans, credit cards, lines of credits, and all debt instruments seem like an attractive resort when people need money. Although acquiring external financing is no easy feat, repaying it with hefty interest payments is a more significant challenge. If you already have gotten your hands dirty on loans, it is time to get things under control. In case you have multiple debts – student loans, credit card, mortgages, consolidate them into one and try to bag a lower interest rate.
The bank will thoroughly assess your repayment capacity. And in case they see chances of default, they would offer low-interest rates to recover as much amount as possible. Moreover, create a budget and allocate a proportionate chunk of salary to debt repayments. Forget about luxuries and unnecessary expenses because nothing is more crucial than breaking this debt trap.
3. Explore Investment Opportunities
Most people think they need substantial capital to invest money. Surprisingly, you can make some smart investments from the money lying in your savings account. Indeed, investing in a bank is the safest option, but the returns are also pretty low. Therefore, learn to take risks in life and put your money in a useful resource. Start exploring the stock market and assess its volatility to ensure no significant fluctuations in the market.
Before calling the shots, analyze prospects, company’s profitability, price to earnings ratio, and dividend payout. It will determine whether investing in a particular stock is worth it or not. Alongside dividends, you get a small share of the company’s ownership, giving you right over profits, assets, and liabilities. However, don’t end up investing all your money in single stock or industry. After all, it is never prudent to put all eggs in one basket. Diversify your portfolio and purchase shares of different companies.
Besides this, study the financial instruments market. It will unfold new investment options with skyrocketing returns. You can delve into the bond market if any reputable company is issuing them above the interest rates. Similarly, you can invest in mutual funds, treasury bills, commercial deposits to enjoy higher returns. Suppose the interest rate is low at the time of their maturity. In that case, you can also earn rewarding premiums on these instruments.
4. Track Your Spendings
Doesn’t every problem arise because you spend too much? The rule of thumb is never to spend money you don’t have in-hand. One of the most vital elements of financial management is to control expenses and follow a strict budget. Thus, no matter how gorgeous the pair of heels look, think twice before swiping your credit card. Likewise, find ways to save money by cutting back on routine expenses. If you drive to work, start using public transport to reduce the fuel expense.
Whenever you have to incur a sizable expense – purchase a television, laptop, etc., wait for the promotional offers. All seasonal, Black Friday, Easter, and Cyber Monday sales offer a noteworthy reduction in regular prices, saving you a few bucks. Besides this, if you are self-employed, make sure to split up the personal and business expenses. Remember to deduct those expenses from profits to reduce your taxable income.
5. Create An Emergency Fund
Every giant company has a ‘general reserves fund’ to secure their company from financial setbacks. After all, financial crises don’t come after ringing a bell. In 2020, the global pandemic led to many businesses’ closure because they didn’t have a firm financial footing. Thus, every entrepreneur and self-employed individuals should have an emergency fund. It creates a financial buffer, keeping your afloat in case of emergencies.
Are you wondering how to create this fund? Put away 15%-20% of your total income into the bank account in every month’s beginning. It will help you pay for unforeseen medical emergencies, home improvements, and car repairs. Simultaneously, it eliminates reliance on high-interest loans and credit cards that can dig you deeper into financial catastrophe. You have to keep funding the emergency account until it has enough money to cover half a year’s expenses.
Today, a stable financial footing has become imperative for survival because a slight error can land you into hot water. Therefore, you have to prepare a robust financial management plan. Begin by fulfilling legal obligations to secure yourself from penalties. Likewise, you have to expand your earning potential and limit expenses to ensure financial stability. Most importantly, stay away from debts and leverage technology to streamline your financial plans.