Like many of us, you may be one of the many people that would like to have a healthier financial life and have heard many a company and financial advisor dispense their wisdom about how to make your money work for you.

Some money management advice sounds as though you need to sacrifice your quality of life when you are young in order to have a modest nest egg when you are older.

The good news is that this is not necessary. Striking a good balance between level-headed financial planning and enjoying your life is not a zero sum game, nor do you need to have an MBA from Harvard.

Personal Finance 101

A basic roadmap is an essential starting point in order to get a handle on your finances. From here you can begin to maximize the mileage of your money. Draw up a budget by calculating all of your living expenses. Work out what your average income will be for the year as well. A good rule of thumb when analyzing your expenses is the 50-30-20 rule. Fifty percent is devoted to essential living costs, thirty percent towards hobbies and pleasure, and twenty percent towards investment and savings.

‍

‍

The second part of your roadmap is the setting of medium and long-term goals. These could include buying a house, saving for your kids college tuition, and for your retirement needs. Calculate how much you will need and how much you must invest monthly in order to get there.

Most importantly, don't spend more money than you earn and avoid non-essential debt at all times. If you are already carrying debt, make it your priority to pay it off as fast as possible.

The Four Areas of Personal Finance

Now that you have a budget and a good idea of what your costs are, you may be a little disappointed by how much is left over for your life goals. Never fear, below are four areas where you can stretch the value of your money.

Savings

Learn to draw a distinction between saving and investing. Saving is for immediate or very short-term needs while investment is for your medium to long-term goals. A typical savings account does not pay very good interest. If your money is not going to be accessed for long periods it is always better to put it into an investment policy or fund that will deliver returns that exceed inflation.

Helpful ways to increase your savings include avoiding credit card debt, cutting out monthly food waste, and getting a better internet and cellphone deal. Some debt is unavoidable such as a mortgage or student loan but credit cards and store credit is to be avoided.

Tips

• Avoid credit card and store debt
• Cut out food waste
• Get a better internet and cellphone deal

Investment

With a more accurate idea of the money that you have for investment, you can now begin to investigate your options. Mutual funds, real estate, stocks, and exchange-traded funds (ETFs) rank amongst the most popular investment vehicles.

When investing, one of the most important factors to consider are the fees that you will be charged. In the case of mutual funds it is equally important to know what the historic returns have been for that fund.

Tips

• Seek out investments with low fees
• Know what the historic performance of your fund or investment is
  

Tax

Far too many people sacrifice their money by simply not knowing about deductible expenses that they are entitled to claim.

Provided that you meet certain criteria, your health insurance premiums and other health costs are deductible. If you are self-employed, your health care tax allowances are even better.

College grads also need to be aware that they can deduct the interest paid per year on their student loans up to a maximum of $2500 as of 2021. Another missed opportunity to claw back some of your own money is deducting the interest payments on your mortgage. Finally, state taxes are deductible on your federal return.

Tips

• Make sure that you are using all deductions that you qualify for.
• State taxes, health insurance, and mortgage loans are most commonly overlooked.
  

Retirement

Retirement contributions are shielded from tax which makes them one of the most cost-effective investment vehicles.

There are retirement accounts known as IRAs and many people will have access to 401k retirement plans through work.

If you have access to a 401k at work and better still, if your employer will match your contribution, then this must be your priority. Focus on making your maximum allowed retirement contribution. If you do not have access to a 401k, then your priority should be to maximize your allowed monthly or annual contribution to an IRA.

Tips

• Start small if you have to
• Maximize your matched contribution with a 401k
• Maximize your contribution to an IRA

Final Thoughts

Know your net worth, have a budget, and a balance between essentials, quality of life, and investment. Understand the difference between your legitimate quality of life expenses and all of the other "stuff". Save cash by claiming all of your rightful tax deductions and avoid non-essential debt.

This may sound deceptive in its simplicity but if you can focus on these basics then you are already way ahead of the game. If you need more help consider tapping into a financial coach like R&D Coaches.

Frequently Asked Questions

How Do I Save Money?

Assuming that you have already worked out how much money you can afford to save each month, then the principle of paying yourself first is paramount. Set up a savings or investment account that pays interest above inflation and then set up an automatic transfer from your bank account.

If your savings are invested automatically every payday then the temptation is removed. Your savings is your way of paying yourself first.

How to Invest in Stocks

First off, you should decide whether you are going to be an active or passive investor, meaning, do you want to actively manage your own investments or would you like a fund or company to do it on your behalf?

Once you have made your choice then you need to choose an investment account, brokerage, or fund that charges low fees. In the case of funds, you should also strike a balance between low fees and the historic performance of the fund.

The most important ingredient is patience and the acceptance that investing is a long-term game. Becoming an instant millionaire is for lottery winners. Learn to see your investment journey as something that you need to build little bit, by little bit. Maintain the habit and time will do the rest.

‍