If your dream is to build wealth for the future then it is very important for you to understand finances and how you can make the most of your income. Here are some golden rules that can help you manage your finances in the present as well as the future.
Most important rule is to keep track of all your finances and do this regularly. Make it a habit. Do not limit yourself to only accounting for monthly spendings. Also keep track of how you spend, be it cash or credit card and how much money you are left with at the end of the month. Categorize your list of monthly spendings into rent, mortgage, household, groceries, gas, medical, savings and so on.
Your projected budget should be fixed each month and should be calculated at the beginning of the month. Based on the knowledge of your spending try to budget out how much income you want to spend in each category. You can also use online tools that are freely available to help you manage your budget. Next track your projected budget versus actual spending. Actual spending is based on your monthly expenditure including insurance payments, mortgages etc. Usually, people set aside 10%-15% of their earnings as savings.
Note: While it might be tempting to be ambitious about your savings target during budget preparation, be realistic.
Make sure you are financially literate and understand the returns that can be expected from various forms of investments and the associated risks. Invest depending on your risk appetite. It might help to employ the services of an investment adviser. There is a lot of information freely available on the net as well that you can leverage to determine your best investment options. Always remember to set aside some funds for emergencies.
Know Your Net Worth
Make the effort to determine how much you are worth based on your spendings and earnings (including earnings from the savings you have invested). Even if you do this once a year, it will give you an indication of how soon you can expect to reach the wealth you have set as your goal. In this way, you can track your progress towards your financial goal. It will also help you to set your risk appetite level and adjust your spending habits.
Remember a little bit of diligence and discipline can go a long way in your wealth creation journey!