At the outset of a new year, it is natural to consider what can be done to improve your financial situation. Building a strong financial foundation can help you prepare for financial freedom down the road. Chances are that you may not be able to achieve financial freedom in one year. However, it is possible to work on getting certain aspects of your finances in better shape during 2011, and moving on to others. Achieving financial freedom is a journey. Here are 5 tips that can help you build a strong financial foundation for the future:
- Photo: Paul Goyette
1. Find Ways to Earn More
One of the keys to strong finances is earning more than you spend. You should rein in your spending, true, but you should also look for ways to boost your income. This doesn’t mean that you take a second job and never see your family. It means that you look for ways to build alternative income streams. Web sites, a side business, or royalties can be good ways to earn alternative income.
2. Avoid Debt when Possible
When you have debt, you are paying someone else interest. This is money that goes straight toward enriching someone else, rather than yourself. Avoid debt where you can, being picky about what you will go into debt for, as well as borrowing as little as possible. You don’t need to borrow $15,000 for a car when the $8,000 car is perfectly adequate. Save up for a down payment when you can.
If you already have debt, pay it down as quickly as possible. Make a plan to get rid of your debt — especially credit card debt which is expensive and can be devastating.
3. Invest in the Future
Be prepared for the future by saving up. Have an emergency fund, and save for retirement. Adjust your budget (or spending plan) so that saving is an important and prominent part. Proper preparation for the future can help you avoid running out of money during retirement, or being financially devastated by unforeseen money problems, including expenses and unemployment.
Properly diversified investments can help you achieve your long-term goals (especially for retirement). Consider your asset allocation, and consider prudent investments to help you get ahead.
4. Invest in Yourself
There are a number of ways that self-improvement can help you build a stronger financial foundation. Develop skills that can make you more marketable. This can help you increase your earning power. Additionally, you can take the time to educate yourself about money and how it works so that you make better decisions that can help you more efficiently put your money to work for you.
Don’t forget to take the time to enjoy yourself and develop affordable hobbies. You will enjoy better productivity, and possibly better health (saving money), if you take the time to eat well, get sufficient sleep, and develop talents and hobbies that can help you reduce stress and relax. This also includes developing healthy relationships with loved ones.
5. Charitable Giving
It may seem strange to consider that giving money away is part of a strong financial foundation, but it is. Many financial experts recommend that you give some money to charity, or to a church, or to some other good cause that you believe in. Charitable giving can also be a good way to strengthen your community and the economy, which benefits everyone.
Can you think of some other tips for building a strong financial foundation?
Great list of things! My last one would be, find a cheerleader. Someone to support you and encourage you along the way.
I think this is what you mainin point 2) but I would refer to it as Spend Less Than You Make! Credit cards make it too easy to spend more than you earn … If you can’t cut the card. I don’t know how many stories we hear about debt out of control triggered by credit cards…
I have also heard many times that surrounding yourself by those who do well, will allow you to do well. Maybe similar to the ‘cheerleader’ comment from Jenna.
We are a single family income and I had to take my wife’s credit card away once… It was a good lesson for her.
I absolutely agree with the points made by Miranda. The one item that I would add is to “make up a budget and keep tracking regularly”. Living within a budget is, in my opinion, the one sure way to achieving savings and investment goals. Unfortunately, many people will start out full of good intentions but once it’s put on paper it disappears into the “to do tomorrow” basket never to be looked at again.
It is easy to advice someone who wants to buy a property and has enough finances to do that. But consider that many persons just basically don´t have enough money to buy their own property, so they can rely just on the mortgage. I guess to have the debt like this is not bad investment. To cut spending on other things such as credit card or a car is easy to achieve. Persons who really want to become to be a profitable will find enough a self discipline to reach their goals.
An another tip i would like to add is to find to find an accountability partner. this stands for sharing your financial goals with the person who can help you keep your momentum. it needs discussion of your progress on a regular basis and to commit to strengthening your financial position together.