Could 2019 be the year you stopped living from payslip to payslip? A study by Fidelity Investments tells us a growing number of people planned to make a financial resolution for 2019. Yet, year after year, this simple dream continues to elude even the smartest of people.
We know the story too well–by the second week of February, 80% of resolutions fail. The good news however, is some have done it and we can glean a few things from their experiences to set you on the path to wealth in 2019. While we can tell you upfront that the process itself is easy, figuring out the how to go about it can be daunting.
Getting in shape financially in 2019 requires 3 simple steps:
1. Save more. Spend less.
Anyone with a slow metabolic rate knows that losing weight translates to two things–consume less food and exercise more. Relating this to your finances, financial fitness requires you to reduce your spending while accumulating savings. You will need to develop a written budget to set limits on your money. Give every single penny a job.
To make an effective budget, track your spending for 30 days. Then, work on putting your spending habits right. Make sure none of the following makes you spend:
1. impulse buying
2. unnecessary services
3. services and subscriptions you never use
There are quite a few personal finance apps that can help with this by helping you wait at least one full day before going ahead with any purchase. As you spend less, save too. Set aside a small amount every payday, and steadily grow that amount over time. Your confidence will grow and drive you to do more.
There should be days or even weeks when you spend nothing at all. Also, be on the lookout for loyalty schemes that help you save money on subsequent purchases. These can be found for all types of businesses, as they have come to recognise the value of capturing customer loyalty.
2. Grow your retirement account balance
Thinking of retirement sooner than later helps shape your thoughts about money. It’s what you do with your money that counts. Your company might have a pension scheme in place. Do opt in now.
If you happen to be in line for a raise in 2019, your appetite should not grow along with it. Put aside some additional income for retirement. Redirect 50% of your raise to your retirement account. This will reduce your current tax bill, increasing your payslip value and helping you build a decent nest egg.
3. Invest
It’s a good thing that you work and are paid to do so, but have you considered putting your money to work for you? Yes, begin to look for ways to invest your money. Investing is not for billionaires alone. You can start right where you are.
There are investing platforms that let you explore the power of index funds with small amounts. Once you sign up, you invest in the stock market. It is a smart way for new investors to get started as index funds imitate the performance of a particular market index, like the FTSE100. This keeps your exposure at a minimum.
With index funds, you won’t be required to research and pick individual stocks. Your portfolio’s performance is also not dependent on the performance of any single company. American billionaire, Warren Buffet, rates index funds quite highly. This means that even the super-rich trust them.
A note of warning however – investing is not a get-rich-quick scheme. You will get rich, but it will be down to a combination of hard work, commitment, and patience. If you stay consistent, the power of compounding will work for you and you will have a chance to grow your money consistently.
Compounding works when you make it work–by investing small (if that’s what you have) sums–and let it turn these into fortunes many times over. The only requirement of compounding is that you pick the right investment.
To help with your financial fitness journey, Suburban Finance will provide tips, tricks, and deals throughout the year to contribute to your success.