Photo: Sharon McCutcheon, Unsplash
By Julius Choudhury
It is important to evaluate your financial decisions, especially during a time of crisis to determine how to salvage where you are and build for a better future. Because some people were unprepared, this year’s pandemic has caused many people’s finances to collapse that will take some time to recover from eventually. Here are some tips to better prepare your finances for any future problems that you may encounter.
Develop and Stick to a Budget
The first step in making good financial decisions is to make a budget. You need to understand how much money you bring in, how much you spend, and where that money is before you can do anything else.
Seeing where all the money is going in your life may be surprising to you. Having an understanding of the bills you pay and the surplus income you have will allow you to make some informed decisions to make changes in the future.
Keep Track of Finances Carefully
It is important to carefully track and record your expenses and income so you can file an accurate tax return each year. You should pay close attention to things you can use for deductions like any business expenses that you acquire during the year. You may be able to deduct travel expenses, corporate lunches, and office supplies on your taxes. You should also track any charitable donations you have made like money for disaster relief tents for hospitals or monetary donations to non-profit organizations.
Pay Off Debt
Paying off debt early can really ease financial burdens and make it easier to weather a crisis in the future. Sometimes debt is necessary, but it is good to pay it off as soon as possible to reduce the amount of interest and to free up your credit for future problems.
Savings
It is important to have some money saved to protect yourself against times of financial problems. It is a good idea to start with saving the equivalent of what you would need to live for one month. Gradually increase that amount until you have at least 3-6 months saved. This way if there is another global or regional issue or a transition time between jobs, you will still be able to function without the stress.
Retirement Funds
It is never too early to start preparing for retirement. The early you start, the more time your money has to work for you. You should take full advantage of the retirement plan provided by your employer, but also look into personal accounts also. It usually makes sense to have a couple of retirement plans.
Invest
You should also start to diversify the ways you bring in money. One way to do this is through investing. You do not need a lot to get started, and there are simple ways that can help you learn as you go with minimal risks. You should always remember to find different ways to invest in order to not lose money if one area fails. The more spread out your money is, the safer you are protected.
