Life Loans

If you recently graduated, or simply consider yourself a young adult, you should take time to develop a solid financial plan. This may not be the most important thing on your mind right now, but it really should. Even if you think you still have plenty of time to build up a retirement fund or to save up for a house – think again. The biggest benefits in growing your fortune come from the time passing by. Yes – the more time you have the more value you can get out of the money you are able to earn and invest.

You will now learn about a few very simple steps that you should take right now, a few easy decisions that you should make to significantly improve the quality of your life in the future.

Set up an emergency fund

I know that this may sound ridiculous to you at the moment, when your income hardly covers your expenses. But it’s never too early or too late to start an emergency fund. Think about it – even if you develop a perfect personal budget, you can never take everything into account. There will always be unexpected expenditures. Maybe your car will break down next month or you will need a new resource for your studies. It would be very smart to have a separate account from which you could borrow the money rather than charging it on your credit cards, wouldn’t it?

You can start right now by putting aside small amounts of money into a separate account every time you receive your salary or get a bonus. Just start immediately – don’t think about it too much.

Being in debt can cause a lot of stress for you. Nowadays an increasing number of people are getting themselves deeper and deeper into debt without any idea of how to get out of it. If you are one of those people, you need a solid debt repayment plan. It needs to be realistic and you need to stick to it. Use these ideas to eliminate all of your debt in the next few years.

Make a budget – and stick to it

Your first step needs to be developing a budget. It sounds dreadful, but it actually can be easy, and certainly very helpful. First, see where you are. Look into your last few months’ expenditures on your bank statement. Now write down your monthly income. Subtract all your fixed expenses like the mortgage payment, car payments, or your children’ school fees. What you are left with is your money for all the variable expenses like food, clothes, books, entertainment, medical bills, and so on.

You need to make sure that your variable expenses can be covered with your disposable income (income minus fixed expenses). If it’s not enough you should probably rethink some of your expenditures or find another source of income (see below).

Increase your income

It is usually a good idea to increase your monthly income. Perhaps you could get a second job for the weekends and evenings, or even a few one-time gigs like babysitting. You need to make sure your expenditures do not exceed your income and that there is some money left every month that can be used towards debt repayment.

Create a plan to repay your debts

Creating a personal budget which you are able to stick to can make an impressive difference to your spending ability and reducing money-related stress. However, developing a personal budget and making it work for you requires no less discipline than sticking to a diet.

See where you are

First of all, as Richard Feynman instructed a graduating class at Caltech: “The first principle is that you must not fool yourself-and you are the easiest person to fool.” Set realistic financial goals for yourself. Check out your account statement for the last few months to get a true image of where your money goes to. Think of areas where you may be able to cut back a little. List all the items that are fixed and cannot be reduced – such as mortgage, monthly car payments, or your child’s school fees. Subtract those from your monthly income to arrive at the amount of money that is left for you to spend on everything else. If the amount you end up with seems not enough for your monthly spending on clothes, food, entertainment, utilities, and medical care – consider switching to a smaller (cheaper) apartment or exchanging your SUV for a more fuel-efficient car. In most cases what you name “fixed expenses” are things you simply don’t want to change rather than necessities. Remember – you must not fool yourself.

Start an emergency fund (yes, really)