Majority of the financial planners advise us to set aside at least 10-15% of our income to fund a comfortable retirement. In fact, it has been seen that a 15% interest rate is all that a 40 year old person earning $90,000 a year would require getting to that $1 million by the time of his retirement. The prospect of cutting down your expenses by double-digits doesn’t go well and according to behavioral finance, a very small number of people will be able to shell off a big spending cut. For most people, saving 10-15% from their pay is pretty difficult and this is the primary reason behind the large number of people who are lagging behind when it comes to their savings and emergency accounts.
Although saving 15% from your pay doesn’t need a drastic change to your lifestyle but there are certainly some steps that you may take in order to help yourself lead a life without debt. With some serious planning and dedication towards mending your finances, it is possible to repay all your debts, keep aside money for your savings account, meet your urgent necessities and then allow money to be dedicated towards your retirement account. Sometimes, the assistance of a financial advisor may help you reach your goal.
Smart ways to adjust when you see an increase in your income
Being able to adjust when you have more money is not a big problem but that doesn’t make the entire process too easy. When people have a windfall of cash, the most common reaction is to blow it all. Here are some ways to adjust when your income increases.
- Adjust without blowing off the entire cash: So, did you just get a huge raise in your income? If yes, don’t think of spending it soon as financial experts recommend you to pause for a while. Before spending your money, make sure you’re solidifying your near future and your long-term future. You should be practical with money, spend some and keep some as well. But don’t splurge. Such times are perfect for thinking and planning for your future.
- Immediately create an emergency cushion: Whenever you have extra cash in hand, it’s easier to start going through old debts and bills but remember that of the fundamentals of security is to prepare for your future. This is why you should create an emergency fund before you spend money anywhere else. Don’t just start paying off old bills all of a sudden. Focus on the current expenses and then on the future.
- Pay off high interest debts: Automate your checking account and make sure a set amount of money is deducted from your checking account every month and is sent to the account of your high interest creditors. When you see a rise in income, you should first cater to your debt accounts. If required, get help from a free debt consolidation program.
Financial adjustment tips when your income falls
When you take a job with a lesser pay or you get laid off, it’s easy to feel that you can’t do anything about this situation. Stay positive and ensure you still dedicate money to pay off debts. Here are some changes to make.
- Stay positive and adjust your outlook: When you lose income, it is considerably difficult to adjust to the changes. But that doesn’t make it impossible! When your income goes down, it’s all about acting rationally and adjusting your financial outlook so that it goes in accordance with your new fiscal state. Make your own meals, cut off your cable, cancel your weekly magazine subscriptions and save money this way.
- Customize your budget and curb recurring expenses: First things should come first. Streamline your budget as much as you can and get rid of all those recurring expenses which you don’t need. But don’t act rashly if you can’t do so. Part of this will also deal with lowering your monthly bills, your phone calls, your utility bills and credit card statements too.
- Automate your finances: Automation of your finances is the key to success. It is even more useful to automate your finances when you’re down on your finances as this gives you a clearer idea of your money. Redo your budgets and make sure you’re still saving money and reducing your debts.
- Increase your passive income: Finally, it’s high time that you look for ways to increase your passive income. Get involved in some part time job so that you can balance the reduced income with some more money from other sources.
Irrespective of what kind of financial change you might be going through, it is best for you to identify it as a change and thereby act accordingly. Remember that no financial state is permanent but exercising control over your finances will give you a better future.