The average person spends far too much money merely trying to maintain an image. From fancy cars to brand-name clothing, much of what we buy has more to do with impressing others than it does to do with purchasing something that we actually want and enjoy. Here are some life-changin ways to check on your unnecessary expenses and how to invest money wisely.
As an individual, one should focus more on creating assets more than a liability. An ideal ratio of asset: liability is considered as 2:1. The asset is what pays you and liability is what you pay for. In today’s modern era on the availability of easy EMI options, millennials are prone to take loans to mitigate their goals. But as per experts, people should restrict this ideology and instead create assets that will mitigate there long term as well as short term goals. Investment avenues have become much active and are becoming even more active day by day. Investment can typically be done at your fingertips sitting at home.
Loans and liabilities should only be taken in case of an emergency or crisis of funds.
Individuals should opt for a term insurance plan to mitigate any medical emergency that comes on their way. Term insurance typically covers all the medical expenses that occur as well as your hospital charges if any. Starting term insurance at an early age will be beneficial in terms of premium paid. The earlier you start the less amount of premium you have to pay.
An individual should categorize their expenditure. This is one of the most essential parts of spending money. People should ask questions like: Why am I spending this money? On what am I spending this money on? And how will I source this spending?
Category of expenditure should be like:
As an individual, people should follow 50:40:10, that is, 50% Investment, 40% Expenditure 10% Savings. But this may vary from person to person based on needs.
Another key factor is the earlier you start the earlier you make money. This is only possible for the CAGR factor. CAGR is considered as the eighth wonder of the world. The CAGR is a mathematical formula that provides a “smoothed” rate of return. It is really a pro forma number that tells you what an investment yields on an annually compounded basis — indicating to investors what they really have at the end of the investment period.
Another way to spend money wisely is to spend money on your credit card if you are able to fully pay it off at the end of the month. If you pay off your credit card balance each month, you won’t incur any interest charges and it will essentially be the same as paying cash.
Just allow some breathing room in between your desire and your decision to buy. Obviously this gives you time to evaluate the purchase against your values and your budget. Decide today that for any purchase over X amount you will “sleep on it.” It could be one night, a week, 30 days, whatever.