2020 was undoubtedly a year filled with uncertainty. The global pandemic not only infected most people’s physical health it also hurt everyone’s financial pockets.
In this current economic climate where long-established businesses are closing doors and unemployment is at an all-time high, you may be wondering how you can safeguard yourself and your family from a financial crisis.
If this is you, read on to learn more about how you can revamp your personal finance management and life insurance policy this 2021.
It’s a known fact that the vast majority of people dream of not worrying about where their money will come from and where it will go. But that’s not typically the case for most people.
The thing is, it’s not about how big or small your take-home pay is. In fact, people who earn an above-median income tend to spend more. This phenomenon is called lifestyle inflation, where individuals that make more spend more to keep up with the Joneses.
The real issue is how you manage your money and how future-proof your financial goals are. Maybe the real reason you’re worried is that you never took the time to observe and change your spending habits to begin with. To save you heaps of stress, later on, follow these tips to optimize your spending habits:
Think Long-Term
Having goals is vital in managing your finances. Plans allow you to gain a better vantage point as to where you want to be within a specified timeframe.
In improving your financial management, make sure you set precise, achievable, and time-bound goals. Identify both short-term and long-term goals. Typically, short-term goals are objectives you aim for within the span of 1 to 3 years, while long-term goals span from 5 or more years.
Life insurance policies are one example of a financial investment that’s considered as a long-term investment. An insurance policy is a contract between an insurer and a policyholder where beneficiaries are entitled to receive a certain amount of money if the policyholder dies.
If you already have a life insurance policy, make sure to regularly evaluate your insurance as your needs may change over time. Also, remember to update your beneficiaries, especially if you’ve recently been divorced.
Assess Your Financial Situation
Most people fail to manage their finances properly because they fail to even look at it in the first place. Evaluating your current situation can give you an overview of where you are financially. Consider these questions when assessing your financial state:
- How much money are you making each month or year?
- How much money are you spending monthly?
- How much debt do you need to pay off?
- Are you following a budget? If so, why is it not working?
- What can you do to reduce or eliminate expenses?
- Are you allotting money into savings?
As you evaluate your situation, you’ll gain a better insight into creating a financial plan that’s tailored to fit your needs.
Create A Budget And Stick To It
Now that you have a financial plan, it’s time to craft a budget plan. In creating a budget, make sure to strictly determine what your needs are from your wants. Essentially, needs are things that are impossible to live without, while wants are things you desire that are not essential for your survival.
Be very careful when prioritizing your needs over your wants. There will be times when you’ll rationalize an expensive purchase as a need when in reality, it’s not. One typical example of this occurs when buying a car. Yes, you do need a car to get to work, go to the supermarket, etc. But do you really need to buy an expensive, top of the line model? No.
As a rule of thumb, practice practicality in purchasing essentials.
Implement your budget, and stick to it as strictly as you can. Tracking your daily expenses on a piece of paper or using an expense tracker on your phone is an easy way to manage your spending. See the table below for trackers you can use for budget.
| App | Fees and Minimum | Best for: |
|---|---|---|
| Personal Capital | Free | Monitoring wealth and spending |
| Simplifi | Free | Personal budgeting |
| YNAB | $84 a year or $11.99 a month (after a 34-day free trial), free for students for 12 months. | Personal budgeting |
Of course, a little self-indulgence isn’t so bad. Reward yourself when you successfully follow through with your budget plan for three months so you can keep yourself motivated.
Start Saving Now
If you want to be smarter in life and with your money, practice saving. Most people take 10% of their earnings and put them in a reserved fund for future use.
Saving is a brilliant way to future-proof your life. When you reserve a portion of your money, you can be prepared if a life-altering event occurs, like losing a job or a health crisis.
Saving money is also excellent preparation for your retirement. Maybe you want to retire early or spend your later years on a lush island; whatever your life goals are, the sooner you start building up your savings, the brighter your future will look like. Try these savings apps so that you can automate saving.
| App | Fess and minimum: | Best for: |
|---|---|---|
| Digit | 30-day free trial period. $5 per month | Setting aside automatically |
| Acorns | $1 per month | Spare change investing. |
| Qapital | $3 membership | Letting you set rules to automate savings. |
Takeaway
How much money you end up with is determined by how well you manage your finances, not how much money you make. Think long-term when it comes to your finances. Skip the non-essentials today, and you’ll thank yourself later when you’re retired and sipping a refreshing cocktail by the ocean.
