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Big Financial Decisions
Getting into big bad debt often is the result of poor financial choices. Buying a house in an affluent, keep up with Joneses neighborhood can lead you mounting bad debt. So is buying a car that is several models above your financial capability. Those are big financial decisions leading to constant struggles of bad debt.
Everyday Financial Decisions with Big Impacts
Then there are smaller financial decisions that also lead you the same way. Any unplanned purchase is a bad financial decision. It doesn't look like much when you pick a shiny toy just because it looked nice. It may also seem insignificant that you pick a few packets of potato chips while waiting in line at the cash counter. Those small financial decisions can add up.
Every time you go to the local super market, you buy more items than you planned. The super markets are designed in such a way to entice you to pick items that you have no plans to buy.
Similarly, when you visit ecommerce sites, you will find items that you don't need and will buy anyway.
You purchase items you don't need and won't probably use for a long time.
Such purchases satisfy you at the time of the purchase, but will come back to haunt you later. Why did I buy that? You ask yourself and find no convincing answer.
Practice Conscious Purchase Decisions
Write down the list of every item you want to buy at least two days before the actual purchase. Keep the list visible to you by placing it somewhere your eyes reach very often. You will be able to strike off items once the initial attraction is gone. Then buy the items left in the list.
If in the store you find a new item that you want to purchase, repeat the drill. Put the item in a list, see the list many times over two days, and purchase it if you still want it.
Even if you can't stop all your impulsive purchases, this is a surefire way to minimise them.
Practice Saving and Investment Habits
If you spend all the money you earn and have nothing left as savings or investments, you are a bad debt magnet. Bad debts will find their way and will ruin your finances.
The one biggest rule of financially successful people is the one rule to live by: Pay Yourself First.
Every time you have a paycheck, send at least 15-20% of the amount to a savings account.
If the rest of the money is not enough to pay your bills, you still are in financial struggle. You need to increase your income.
Saving is not investing. Saving means you keep money aside so that you can support yourself manage unplanned expenses.
Once your savings grow enough to support you through at least three months of joblessness, start investing your money.
Investments give you returns on your money. Start with debt funds and stocks. Do your own research. You only need to invest in less than 0.01% of the stocks listed in the market.
That is, you can safely ignore thousands of companies and start with the 30 stocks in index funds. Those companies are picked for index benchmark because they are large, has huge potential and have a history of retaining a healthy balance sheet.
Picking the stocks and funds that don't lose your money is as easy as looking at the 30 companies that form the market index. Start with the index companies that have the highest dividend yields.
Spend Money to Increase Your Net Worth
Buying every item you see in the supermarket has negative effect on your net worth. Buying the shares of the companies that sell those items will grow your net worth.
Your journey to responsible financial decisions in three steps:
- Start with conscious purchase decisions
- Pay yourself first – send 15-20% of your paycheck towards saving
- Invest in funds and stocks that won't lose you money
