Personal finances play a very important role throughout our lives. The assets we own, the services we can access, and even the level of experiences we can enjoy are influenced by our financial management.
You may be earning a very good salary today, but life is a very long-term game, and believe me, if you don’t save, invest and take care of your debts with your future in mind, you will simply lose the race in your old age.
Here’s a list of 9 actions (in no particular order) that will allow you to put your money to work and take your financial health to the next level.
1. Keep an emergency fund
Life is unpredictable and there are things that are simply beyond our control. However, it is always good to have an emergency fund and be prepared to cushion life’s blows.
Never neglect your savings account and always have on hand an amount of money capable of covering possible eventualities, such as an illness or replacement of some good inside your home, since there will always be something that can go wrong, and ideally you can deal with it without resorting to debt.
2. Start saving and investing as soon as possible.
Although it is never too late to start saving, the sooner you do it, the better. You can start by reducing expenses that do not imply a decrease in your quality of life and that are of a non-essential nature, so that you can allocate that money to your savings on a monthly basis, in these situations living frugally is key.
Many savings alternatives, such as retirement funds, allow you to take advantage of the magic of compound interest, that is, the interest generated in the previous period is added to the initial capital for the next period, so that a snowball effect is obtained by generating interest on interest.
3. Use debt wisely
Debt instruments can be very powerful, and debt itself is not as ghoulish as some people think. In fact, the bank can be your best friend, but if you use debt incorrectly you will end up shooting yourself in the foot.
Never use debt instruments as a tool to acquire assets that devalue quickly and easily, as they will not generate an increase in your equity or income in the long run, which is precisely one of the reasons why real estate tends to be so desirable in most cases.
Avoid debt when acquiring assets such as vehicles, computers and smartphones, to give some examples (unless your business is based on the commercialization of these items, or you need a work vehicle, such as trucks or vans, but that’s a story for another post).
4. Explore the world of real estate
If you have the opportunity to enter this world, don’t miss it. Real estate is still as profitable as ever, however, it requires much more money to get into it compared to previous decades.
On the other hand, the scarcity of available land in many cities around the world makes it very difficult for these assets to go down in price. However, buying property or land and renting it to third parties is still an excellent way to grow your wealth and obtain greater financial security.
5. Start a part-time business
If you want to increase your income in a less risky way compared to a full-time venture or a second job that requires you to work a set schedule, you can start a part-time business.
As the months go by, if you see that everything is going well, it can turn into a full-time business, allowing you to leave your current job and dedicate yourself completely to your own venture.
Another advantage of starting a part-time business is that you can alleviate the financial instability of a venture in its first months or even years of life, since you do not need to leave your current job.
In addition, you can invest small flows of money from your current job in your new project, being able to avoid debt in many cases.
6. Think about your long-term goals
To take your return on your money to the next level, you also need to sit down and think. Evaluate how high your current debt is, what projects you’d like to accomplish in the next few years, and how much money you’ll need to get there. You can even turn to a financial professional to help you along the way.
Once you have sized the debts you have to pay and the projects you want to finance, the next step is to make a simple budget.
The first thing to do is to establish how much money you will allocate to each element of your budget each month. Remember to prioritize your most urgent commitments, such as paying your debts.
Finally, it is important that you leave a small space to treat yourself and do things you enjoy, but ideally this should be done with the money left over. You can also set aside a specific percentage, such as 10% of your monthly income, to give an example.
7. Master your credit card
Many people end up developing a high dependency on their credit cards when making purchases and payments for goods and services. The problem is that if you are trying to get out of debt, the additional costs of your credit card will not be beneficial at all.
Use your credit card for purchases and payments when you have complete certainty that you will be able to pay those amounts in full before your card’s billing date each month, so that you don’t pay interest. On the other hand, make the most of the rewards offered by your credit card, which usually range from discounts on gasoline and food purchases to airline tickets.
The main idea is not to stop using your credit card, since it defines an important part of your credit score, but you should control it as much as possible.
8. Use your country’s secondary funds
Nowadays, there are many ways to reduce your taxes, one of them corresponds to the secondary funds, which allow you to save money in the long term, ensuring a reserve for when you need it most.
What is fascinating, however, is that these funds also allow you to reduce your taxable income, so that you will most likely be able to pay taxes at a lower income level than you are currently paying.
Each country usually has funds of these types, but with different names, for example, in the case of the United States, you can use an individual retirement account (IRA), employer-sponsored defined contribution pension (401(k)), flexible spending account (FSA), simplified employee pension (SEP) or health savings (HSA).
9. Use ETFs to invest and move your money
A common mistake is to keep excess money sitting in your bank account. For your money to be productive, it must work for you 24 hours a day, without you having to invest time and effort. This is where Exchange Traded Funds or ETFs come into play.
ETFs allow incredible access to global assets, and have very high diversification, flexibility and low costs, and can even access tax benefits.
Many ETFs operate under the modality of an index fund, that is, they try to deliver a return similar to that of a financial index by tracking it, whether it is a bond, commodity, stock or even cryptocurrency index.
There are regulated companies such as M1 Finance (USA), Betterment (USA), Acorns (USA), Fintual (Chile/Mexico/Colombia), among others, that deliver the advantages of a diversified and global ETF portfolio, without the technical, operational and financial complications you would have to deal with if you chose the same portfolio to invest on your own.
In Conclusion
There are multiple ways to increase the productivity of your money. However, don’t forget to also look for alternative ways to increase your income stream without having to get another full-time job.
On the other hand, don’t forget to optimize your expenses month to month and don’t leave excess money sitting in your checking account. Applying the various practices mentioned in this post will allow you to enjoy greater financial health and stability, which you will be able to sustain in the long run.