It is usually a headache.Even if you’re not going through a bad financial time, just getting things in order and thinking about the best way to achieve your financial goals usually requires considerable effort.
So BBC Mundo asked several advisers what is the best way to improve the management of your resources, and the answer seems to be simpler than you might imagine.
Spend less than you earn
“The best financial advice I can give is to spend less than you earn,” Kevin Hegarty, founder of the New York-based company Hegarty Advisors, tells BBC Mundo, who has long experience advising companies and government agencies.
Although there are many applications to do this monitoring, the expert points out that some of them may have security problems related to other websites.
For this reason, he recommends a traditional-style method: write daily disbursements in a notebook .
Despite the fact that pens are being used less and less today, “the mere act of writing it will lead you to spend less.” So once again we are facing an effect p psychological in handling money.
The next step is to categorize those expenses and understand your habits. “This simple process will lay the foundation for finance success,” adds Hegarty.
Invest the unproductive money
If you are not in financial trouble and have already paid your debts, it is advisable to have a “savings cushion” —that is equivalent to your three or six months income— in a savings account that provides a return of at least 1.5 % -2% interest.
“This is to help you have a soft landing in the event of a financial emergency, ” Sarah Behr, financial planner at Simplify Financial, based in California, tells BBC Mundo.When you have this fund insured to cover unforeseen events, then you are prepared to invest the ” bad money ,” he explains.
That money is the one that stays stuck in your savings account and earns a minimum level of interest.To invest in the stock market, Behr proposes to invest in some broad stock index ; that is, it includes several companies.
And if the option is to hire a company that manages people’s assets, be careful that the cost of the advice is not greater than the potential profits, he warns.
Automate your finance
Experts agree that automating finance could be a good way to start.They insist that it has a psychological effect, since when payments and transfers are set automatically , your planning works much better.
In fact, if you set out to save a monthly amount and do not leave it automated in your account, it is very likely that you will forget it or that you will leave it for later, since you will likely find more urgent needs.
Use Snowball Method
Among the most popular strategies to pay off debts – especially with credit cards – are the “avalanche method” or the “snowball” method, Greg Mahnken, an analyst of the credit industry at the consulting company, tells BBC Mundo. Credit Card Insider, based in New York.
The avalanche method is to pay off the debt with the highest interest rate first (as long as you have already made the minimum payments for the rest).Thus, you avoid charges that finally eat up your money and do not let you pay off the debt.The snowball method works in reverse.
After you have secured the minimum payment of all your debts (as in the previous case), you dedicate your financial efforts to pay the smallest debt first.After paying off the entirety of the smallest debt, you then direct your income to pay off the second smallest debt.
“This method does not allow you to save money in the long term, because it does not eliminate your most expensive debt first, the one with the highest interest,” he says.On the other hand, it allows you to reduce the number of accounts or credit cards with debt, which facilitates their monitoring as you pay them off.
“It should be easy not to spend the amount of your salary that is not in your checking account” if you have automated its transfer to another destination.