You’re so eager to be out of debt that you want to clear all of them all at the same time. Although your determination is admirable, this strategy might not work. Paying out small amounts to different sources of debt will wear you out pretty fast. It won’t seem to make much of a difference in reducing your debts- which will also reduce your motivation to pay them off.
Solution: Try the snowball method of paying off debt. This is where you start by addressing the smallest debts (maybe from family and friends) first. While you can make minimum payments on bigger debts, you should aim to pay off as much of the smallest debts as you can. Paying off your smallest debts faster will help you gain momentum and motivate you to keep going till all debt is paid. Additionally, the amount of money you have available to pay debt will increase once the smaller debts are paid off. Think of it like a snowball rolling down a hill, getting bigger and bigger as it goes. You start with small actions, and over time, they make a huge difference.
Dip into their savings when disaster happens
What financially savvy people have is a contingency fund, otherwise known as an emergency fund. This is separate from a savings account, which is for self-development and investments. The contingency fund is for unforeseen expenses, things that you could not have planned for like medical emergencies, fire, a car breaking down, getting an accident that the insurance cannot cover because you are on the wrong and all that. If you have not budgeted for it, it can throw you off mentally and financially for a long time. If you don’t use the month’s fund, then the following month you don’t have to budget for it.
Leave one job for another without saving six months’ worth of salary
Being money smart is knowing that nothing in life is guaranteed. What if your new job turns out to be a bad fit? Or the promising startup company fails? This is why you should build up an emergency fund before leaving your job. This money will come in handy in case you’re suddenly rendered jobless, as you search for another job. Once you’ve determined that you’d like to look for another job, look for ways to keep your expenditure under control so you can boost your savings. You can also look for a side hustle to help you increase your cash cushion before you head to a new job.
Do it for show
“Show me your friends and I’ll tell you who you are,” goes the adage. If you hang around people who spend money recklessly, you will also be more likely to emulate them. If your friends are always suggesting expensive leisure activities, don’t break your back -- or the bank -- trying to keep up with them. You can suggest less expensive options or even take a rain check. If they’re real friends, they’ll understand and support your goals.
Invest in things they don’t understand
In the words of renowned American investor Peter Lynch, “Know what you own and why you own it.” You hear that others are making crazy profits from hot, trendy, and fancy investments and you too, desire to make similar investments. You probably know little or nothing about the industry, the technology, and how exactly it’s going to end up putting money into your pocket. This is how many investors end up losing their money. Investing in businesses and industries that you understand gives you a built-in advantage over most investors. You will be able to know- before it becomes public knowledge- if the industry is booming, getting slower, or cooling down.
Put all their eggs in one basket
While diversifying your investment portfolio doesn’t guarantee that you won’t lose money, it’s better to manage risk by spreading your assets across different investments. Diversification isn’t just about acquiring different stocks, it also means investing in different industries and asset classes. This means stocks, bonds, and cash instruments. As some of your investments fall in value, others will probably rise or hold steady- which will help you offset any losses.
Don’t get into business if they don’t have the chops for it
Everybody wants to be an entrepreneur but not everyone has the grit or stomach for it. So what can you do? Keep your job, but manage yourself like you would a business. Make profits every month, and reinvest these profits. That simply means that no month should go by where you don’t retain money for investment. Just like in a business, you should have minimal running costs and should project growth in net worth. Growth could mean that every year, you are able to make more savings than the previous year. That each year, you are making more income (pay hikes or increased revenue streams). Like by the famous mantra by Jay Z, ‘‘I am not a businessman; I am a business, man’’ so should you be.
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