The journey of life is not always smooth sailing, there are ups and downs. At times, we may face financial difficulties or even find ourselves in a financial crisis. In such moments, a crucial question arises – do you have the desire and determination to change your current situation?
If your answer is yes, then congratulations, this article might provide some inspiration for you. Former investment banker turned financial blogger Nisha Patel shared some strategies on her social media channel to help you change your financial situation in 6 steps within six months.
First and foremost, it is important to acknowledge and break free from the “ostrich mentality”. Typically, people tend to avoid information that may make them feel uneasy, such as low bank account balances or surprising debt totals. It is essential to confront your situation head-on. You need to know several key figures about your financial situation:
– Monthly net income: the actual amount you take home after taxes
– Essential expenses: including rent, utilities, groceries, and transportation
– Miscellaneous expenses: for leisure or enjoyment
– Savings goal: the amount you allocate for saving and investing
Start tackling your debts as soon as possible. Prioritize high-interest debts like credit card balances or short-term loans, especially those with an annual interest rate exceeding 7%. Consider strategies such as paying off smaller debts first or prioritizing high-interest debts. Working towards gradually eliminating debt can be motivating when you envision a debt-free future.
Begin by setting aside a basic emergency fund equivalent to one month of essential expenses. Achieving this may require adjustments to your familiar and comfortable lifestyle. For example, cancel unnecessary subscriptions, cut back on takeout meals, or postpone non-essential purchases. Stay firm in your determination to reach your goal without distractions.
Saving on expenses alone may not lead to financial freedom; increasing income is key. Negotiate a raise with your employer, explore higher-paying job opportunities, or engage in side gigs like online tutoring, freelance writing, or secondhand trading. Even an extra $150 earned per month can make a significant difference in the long run.
It’s never too late to start learning about and dabbling in investments. Consider options like low-cost index funds or exchange-traded funds (ETFs), opening a personal retirement account (IRA) or similar tax-advantaged investment tools, and utilizing employer benefits such as participating in company-provided pension plans.
Initially, allocate 60% of disposable income to savings and 40% to investments. Increase the investment proportion once your savings reach the target. Remember, investing is not about seeking overnight riches but a method to steadily grow your funds over the long term.
After persevering through the initial months of discipline, new and good financial habits will gradually form. For instance, set up automatic payments for essential daily expenses to prevent your income from being diverted to leisure and enjoyment expenses or prematurely spent. Set up a separate account for entertainment and enjoyment expenses to avoid impulsive spending that could derail your financial plans and draw you back into debt.
Following these steps, according to Patel, after six months, you should see a significant improvement in your financial situation. However, it is important to regularly review your financial plan to ensure it still aligns with your life needs and goals. Adjust your budget for expenses, savings, and other aspects once your income increases, debts decrease, or are paid off completely.