6 Ways to Better Manage Your Finances So You Have More to Invest
What would happen if you spent as much time managing your finances as you do working out your investing strategy? Chances are, you'd have more money at the end of the day. Investments require capital, and better money management can help free up that capital in ways you'd never imagined. Plus, if you limit or eliminate the nagging stress of monthly finances, you just may find yourself more able to focus on finding that next hot stock. For some tips on how to better manage your monthly finances and improve cash flow for investing, read on.
1. Start or Fine-Tune Your Budget
Tracking monthly finances and uncovering ways to save without a budget is difficult, so if you don't already have one in place, get started today. If you do use a budget but haven't reviewed it in a while, dust it off and take a closer look. Things change over time and operating from an accurate budget can help ensure that you have the most up-to-date understanding of your finances. Review amounts for all your monthly bills, and update discretionary spending categories such as entertainment and travel.
2. Trim Monthly Expenses
Review all service plans like cable TV, Internet, and smartphone data and minutes. Take a look at the competition to see if you can save by switching providers. Also, investigate bundling options. You may be able to cut costs by as much as 30% simply by getting all three services from a single company.
3. Rethink Your Personal Purchases
Ready for a fun new strategy? Wrap all the cash in your wallet in a small piece of paper with a question mark on it. Each time you reach for your money, ask yourself if you really need this item? If you answer honestly you're likely to find a lot more money left in your wallet at the end of each month.
4. Refinance Your Home Loan
Refinance rates have recently been at all-time lows, but they're starting to tick back up. 30-year rates, however, are still in the low-4% range, so if you're paying 6% or more in mortgage interest, consider pulling the trigger on a re-fi. Depending on the size of your loan, you may be able to reduce your monthly payment by as much as $300, and possibly more.
5. Pay Down Credit Card Debts
If you carry a lot of credit card debt you're wasting plenty of money that could be going toward investments. Add up your total amount of credit card debt and come up with a sensible plan to pay it down. Depending on your income, $5,000 in debt could easily be paid off in about two years as long as you save aggressively in other areas.
6. Give Yourself a Cushion
Investing your capital is essential to building personal wealth, but you also want to protect yourself against any unforseen financial needs. Take some of the money you've conserved through your budget-cutting efforts and establish an emergency fund. You never know when a change in employment, a car accident, or a medical issue are going to present themselves, and you always want to be prepared. Shoot for a reserve of nine months of living expenses. And, to make your emergency fund truly work for you, feel free to include it in your investment portfolio. Just be sure it's liquid and in a relatively low-risk fund.
In order to keep your money management strategy as accurate as possible, track your savings from the above steps and keep a running total of your savings. Then, incorporate that surplus into your investing strategy to maximize your returns. Be sure to always keep an eye on your monthly bills and other expenses and you can achieve a healthy, wealthy financial life.
What ways can you think of to free up more funds for investing?
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.