Achieving financial freedom is a goal for many people. It generally means having enough savings, investments, and cash on hand to afford the lifestyle you want for yourself and your family—and a growing nest egg that will allow you to retire or pursue the career you want without being driven by earning a certain amount each year.

Unfortunately, too many people fail to achieve it. They are burdened with increasing debt, financial emergencies, profligate spending, and other issues that thwart them from reaching their goals. Then there are unexpected events, such as a hurricane or earthquake—or pandemic—that overturn plans and reveal holes in their safety nets that weren’t visible before.

We will now provide some useful tip on how you can plan against financial shock by choosing the right lifestyle.

• How do You Take Control of Your Financial Life?
• How Can we Solve Financial Problems?
• What Are Three Strategies That You Can Use to Make Better Financial Decisions?
• How do You Overcome Financial Distress?
• How to Improve Your Financial Situation
• Types of Financial Problems
• Financial Problems Solutions
• How to Solve Financial Problems in Family
• How to Become Financially Independent in 5 Years
• How to Improve Your Finances
• Keys to Financial Freedom
• How do You Overcome Financial Anxiety?
• How do You Control Your Expenses?
• How Can We Avoid Financial Problems?
• How Can we Get Rid of Financial Crisis?
• What Causes Financial Stress?
• What Factors Influence Your Financial Future?
• What Financial Decision Making Strategies Can You Use?

How do You Take Control of Your Financial Life?

Imagine how your life would change if you woke up tomorrow and:

• You knew exactly how much money you had
• Your bills were paid on time
• You invested your money for retirement automatically
• You had an extra $1,000 to spend or invest in whatever you wanted
• You had leftover income to spend on what you love — guilt-free

This isn’t just some pipe dream. You can have all this as long as you implemented the right mindset and systems — and that starts with …

1. Change your mindset

What’s the conventional wisdom around getting rich? Some things that probably come to mind:

• Cut costs by sacrificing the things you love
• Save money by pinching pennies
• Keep a traditional spreadsheet budget
• Invest in stocks/crypto/magic-bullet-of-the-week

Luckily, I’m here to tell you to ignore all that. Instead, reframe: The best way to live a Rich Life is to be conscious with your spending — and not relying on willpower.

Read Also: Here’s how a Money Buddy can Help you Reach your Financial Goals

For example, you’ve probably heard about the millionaire who told millennials to cut out avocado toast to save money for a downpayment on a house. One huge problem (among many) with that advice is that it relies completely on human willpower.

Sure, someone hearing this advice might try to give up avocado toast — but they have to make that decision every day. That means using their limited amount of willpower to forgo something they love to eat in the hopes of achieving a vague savings goal. Eventually though, they’ll give in and end up buying avocado toast.

It all ends up looking something like this:

Instead, I urge anyone reading who wants to truly take control of their finances to adopt a new mindset. You can have your avocado toast and your morning lattes without feeling guilty as long as you are conscious with your spending.

And that can only start once you achieve one thing …

2. Get out of debt

This is possibly one of the most important things you can take away from this article: The biggest and most common barrier in the way of living a Rich Life is debt.

If you are one of the 80% of Americans in debt, you need to start getting out of it before you think about investing and earning more for two big reasons:

• Financial. This is obvious. When you’re in debt, you owe money to your creditors. And as long as you owe money, you’ll never truly own your income, as some of it is already earmarked for the people you owe it to.
• Psychological. This might not be as obvious. Debt takes a huge psychological toll on the people who owe money, and can even lead to mental health issues such as depression and anxiety.

But there is hope. In fact, getting out of debt is a fairly straightforward process as long as you’re willing to put in the effort.

• Find the exact amount you owe. A study found that many don’t actually know how much debt they owe. However, this just leads to you blindly paying the minimum payment instead of actually owning your debt. Only then can you start a good strategy to get rid of it.
• Use the Snowball or Avalanche methods. Dave Ramsey famously touts his Snowball Method of getting out of debt. This involves paying the minimums on all of your debt, but paying more money to the card or loan with the lowest balance first (i.e., the one that will allow you to pay it off the quickest). There’s also the Avalanche Method, which involves tackling the debt with the highest interest rate first. It doesn’t matter which method you choose. What matters is you choose one and stick to it.
• Decide how you’re going to pay your debt. There are a number of ways you can approach this. You can negotiate a lower interest rate and put the money you save toward chipping away at what you owe. You can also tap into hidden income to free up some money. If you’re really enterprising, though, you can start EARNING more money (more on that later).

Once you’re done with that, you can move onto our third system …

3. Automate your personal finances

Having an automatic system in place for your personal finances is a great way to:

• Be conscious with your spending
• Pay down your debt passively
• Invest without even thinking about it

It’s also the best way to make sure you’re conscious with your spending.

One reason we don’t save or invest money is due to the pain of actually transferring your money into your savings account each month.

It’s like cutting out avocado toast. We might do it once or twice, but if we have to try and manually save EVERY paycheck, we’re setting ourselves up for failure.

When you automate those things though, you can do it passively because your system does it for you. That means saving, investing, and spending guilt-free for years to come.

First, categorize your spending. You have to know exactly where your money needs to go each month in order to send it there.

So ask yourself, “How should I spend my money each month?”

Some spending recommendations:

• Fixed costs. About 50% to 60% of your income should be going toward things like your rent, phone bill, utilities, and internet.
• Investments. About 10% of your income should be going toward investments for the future such as your Roth IRA and 401k.
• Savings. About 5% of your income should go toward short- to mid-term savings goals. Think things like your wedding, down payment for your house, and down payment on a new car.
• Guilt-free spending. About 25% to 30% of your income should go toward guilt-free spending. This is things like extra guac in your Chipotle burrito, investments like crypto, or your morning lattes.

Second, you’re going to want to take a look at your recent credit card or bank statement and subtract the amounts in those categories from your take-home pay. You’ll then get an idea of what you have left over for categories like investing, saving, and guilt-free spending.

NOTE: This doesn’t have to be an exact amount. This can be a ballpark figure. As you get more advanced, you can fine-tune this system. The important thing to do now is to get started at all.

Last, you’re going to spend a few hours calling your bank, credit card companies, utility companies, and payroll manager at your job to make sure that you know exactly when to expect them each month.

Once you’ve automated your spending, congrats! You’ve taken a crucial step. You’re learning how to control your finances.

That’s not all, though, you should also make sure that you have a good investment system in place — which brings us to …

4. Invest for your future

There are two big ways you can start investing in your future today:

• 401k: Take advantage of your employer’s 401k plan by putting at least enough money to collect the employer match into it. This basically means that for every dollar you contribute, your company will match that (pre-tax!).This ensures you’re taking full advantage of what is essentially free money from your employer. That match is POWERFUL and can double your money over the course of your working life:
• Roth IRA: Like your 401k, you’re going to want to max it out as much as possible. The amount you are allowed to contribute goes up occasionally. Currently you can contribute up to $6,000 each year.

5. Find Additional Sources of Income

Financial issues sometimes stem from insufficient income as opposed to spending issues. If you are sticking to a budget, not spending money on things you don’t need, and still have challenges making ends meet, you may want to look for a higher-paying job or generate more than one source of income. More income tends to provide more financial stability, especially if you are single or in a single-income household.

If you can’t change jobs, look for opportunities to generate income on the side or in addition to your job. Passive income from a rental property is another way to build wealth or find more money to get yourself out of debt.

How Can we Solve Financial Problems?

No one is free from financial problems. Poor planning or going through a tough time, such as a divorce, illness or unemployment, can really tip the scales. Need help? Here’s some advice on how to manage your financial problems.

1. Identify the problem

Being in debt does not necessarily mean that you have financial problems. Few people would be able to purchase a home or a car otherwise. However, some red flags should be taken seriously.

Do one or more of the following statements apply to you?

• You have many credit cards and you’ve begun to use one to pay off another.
• You have to refinance your property to support your lifestyle or pay off debts.
• You are unable to pay off more than the minimum amount required on your credit cards.
• You are late on or skipped some payments.
• You dedicate 40% or more of your gross income to paying off debts.
• Your financial situation is a source of stress.

If any of these sound familiar, you will have to take certain measures to correct the situation.

2. Create your budget

The first step towards managing your financial problems is creating a budget. You can use software, an online budgeting tool, a mobile app or simply a piece of paper, a pencil and a calculator.

Write down your income and all of your expenses. To avoid underestimating the latter, save all of your bills for one month. Think about other one-time costs, such as school expenses, gifts, vacations, your driver’s licence, etc. Don’t forget to pay off your debts.

Many consumer associations also offer training on budgeting.

3. Lower your expenses

Some expenses can easily be lowered. Think about reviewing different packages, like your telecommunication services. You could save by ensuring that all they do is meet your needs – nothing more, nothing less. You could also start looking for deals at the grocery store and limit the cost of eating out by making your own lunches.

Analyze each of your expenses to see how you can lower or eliminate them.

4. Pay in cash

Debit and credit cards are convenient, but they can make it harder to track your expenses. Paying in cash can help you stick to your budget. For example, you can put your cash in separate envelopes for groceries, entertainment and clothing.

5. Stop taking on debt

Avoid taking on additional debt by living within your means. Make sure you have enough to repay your credit card balance and other debts. If you tend to make impulse purchases and regret them later, you may want to start leaving your credit card at home.

6. Avoid buying new

There are many alternatives to buying new:

• Buy used or exchange goods. Check out thrift stores, online classified ads and Facebook pages for neighbourhood sales. There are many bargains and opportunities for trades.
• Borrow or rent. This is a good option for items you will rarely use. For example, sign up for a library card to check out books or magazines.
• Do it yourself. Using a coffeemaker is far more economical in the long run than buying a coffee every day.
• Take advantage of freebies. For example, there are many free shows and activities at festivals.

7. Meet with your advisor

Your advisor will help you with your financial problems. They can review your banking package fees and your insurance coverage. They can also offer certain solutions, such as a reduced-rate credit card with annual fees.

Together, you can also look at the possibility of debt consolidation. Combining your debts on the same low-interest loan will help you pay them off more quickly. This will also facilitate the management of your finances.

8. Increase your income

Think about ways to increase your income to deal with your financial problems. Here are some options:

• Ask your employer if you can work overtime.
• Offer products and services for extra income.
• Sell items that you no longer use.
• Find a roommate.
• Get a second job.

Be wary of ads that claim you can earn money easily. These are often scams.

9. Be realistic

If you have overspent for many years, you cannot expect to reduce your debt in just a few weeks. Realistic goals will help you stay motivated and reduce your financial stress.

Just like a diet, significantly restricting your expenses will only increase your appetite to spend. Plan a little wiggle room in your budget to treat yourself.

10. Improve your credit report

Do you have bad credit? If that’s the case, the financing offers you receive will have higher rates. Why? Because you present a greater risk for the financial institution. Here are some tricks to improve your credit rating.

• Pay your accounts on time.
• Keep a healthy margin between your balance and credit card limit.
• Avoid applying for too many credit cards.

Once you have managed your financial problems, continue taking care of your personal finances. The money you save will allow you to create an emergency fund. Ideally, this should equal three months of expenses. If an issue arises, you will be able to take out the money you need without going into debt.

After that, you can start saving to finance other goals, such as your retirement, your children’s education or a trip.

What Are Three Strategies That You Can Use to Make Better Financial Decisions?

Here are a few steps to make sure you think properly — when making any important financial decision, such as buying a stock, fund or other financial product.

1. Never make a quick decision. Though you may convince yourself you are thinking logically, you may not be. No matter what, wait at least a day or longer. If someone tells you the offer is only good for today, run.

2. Create a list of outcomes. Make sure to write down at least a couple of ways your decision can go wrong and how much money you could lose. If you think it’s a sure thing and that nothing can go wrong, then that’s a strong sign of success.

3. Change roles. In addition to asking yourself how this can be good for you, also consider how the person or company selling it to you benefits. Their motivation may not be in your best interest.

4. Get data. Some course might be counting on the client not asking what your track record was or exactly how you were going to get the client to reach financial independence, much less why you are different from other planners. So ask questions — and demand answers.

5. Discuss the decision. Talk it over first with someone you trust and respect, but who doesn’t always agree with you. This has two benefits. First, it forces you to try to actually understand something first so that you can explain it to someone else. Second, you are getting feedback from someone who doesn’t have an emotionally vested interest in this decision.

How do You Overcome Financial Distress?

For many Americans, financial concerns are ever present, especially given the uncertainties of today’s economy. While worrying doesn’t solve much, having a plan to try to manage financial challenges can help ease some of that stress.

Here are some suggestions for how to help reduce your money stress and get motivated to take control of your finances:

1. Identify what needs the most attention

Write down your three biggest money challenges so you know what you’re up against. Whether it’s making your monthly bill payments, reducing credit card debt, or saving for retirement, it’s important to focus on the main sources of your financial anxiety. (Keeping the list short can help you feel less overwhelmed.)

2. Try to stay positive

Your mindset can help keep you motivated to fix your financial problems. Rather than get bogged down by thoughts of never getting out of debt, imagine the amount of stress you feel decreasing as your debt load gets smaller and smaller. It’s important to believe you can do it.

3. Be realistic

Determine what you can reasonably achieve and then dedicate yourself to following through each and every month. Make yourself a promise: “Each month I will spend less and put the difference toward my debt so my balance declines by at least $100.” Just like a crash diet or intense new workout routine can lead to burnout, you don’t want to set overly ambitious financial goals that you may abandon in a few weeks or months.

4. Make the most of your income

The belief that you simply don’t have enough money to put towards your goals can keep you from dealing with your financial problems. Try to focus on making the most of the income you do have by spending wisely. We’ve put together a list of money-saving tips to help get you started. You might also consider using a calculator to see how long it may take you to hit a savings goal. Bank of America offers a savings calculator that could help.

5. Small steps are key

You may not be able to cut any one expense by $500, but you may be able to identify five monthly expenditures you could reduce by $100. Forgive yourself if you slip up. Sticking to a budget is not always easy, and there may be days when your resolve falters.

If that happens, remind yourself of how much you have to gain by reaching your goals. Then examine your spending patterns to see why you overspent. You may need to modify your budget or your behavior—if you can’t go into sporting supply stores without buying something, stop visiting them.

6. Keep yourself honest

Leaning on your relationships can help keep you on track. Every hard task becomes easier with the support of friends and family, so share your goals. There’s no one better to hold you accountable and remind you what you’re sacrificing for than those you love, trust, and respect.

How to Improve Your Financial Situation

With the business market more competitive and fast-moving than ever, it can become very easy for unexpected holes to open up within your budget planning and the implementation of your corporate strategy. When such financial setbacks occur, there are things you can do to help overcome these challenges and maintain your position in the market.

1. Cash Flow

Plan when and where your cash will be coming from for the next quarter, to ensure you have contingencies in place for more pressing payments. If you are struggling to pay those prioritized, finding alternative lenders could be the boost you need to get you out of this cash slump.

Getting a short term loan, to get your feet back on the ground can provide some support and stability to the company’s financial structure whilst you work all your efforts on making improvements to prevent this situation from reoccurring.

Leading short term loan provider, Cash Stop, believe that “Making the effort to borrow cash before you desperately need it, while staying disciplined how you use it, can help manage your stability, put you in a greater position emotionally and help make better decisions.” – Steve Jacob, General Manager, Cash Stop.

2. Organize and prioritize payments

Differentiate between the essential and less important costs over the next quarter, this will allow you to project where you need to be injecting your cash flow. Start by cutting any unnecessary expenses eating into your budget, these are key issues to business’ routinely overspending as you will be surprised at how much you are spending on operations when you take a closer look.

Revise ways that you can be more cost savvy with expenditure whether it is looking at more efficient, low cost transportation, delaying replacements of equipment or requesting extensions from your suppliers until you have turned your financial instability around.

3. Crisis Management – Communications

Transparency is incremental to the success of your ongoing market position. Your customers and investors will all need to be in the know, so make sure that a communications plan is in place to roll out so that your target market are getting the correct information rather than being misinformed with hear say from the media.

4. Audit, Re-Organize & Adjust

To rebuild your company, you may need to shift things around in order to make your team and operations stronger. Your staff and operations may not be as effective as they could be as a result of following old processes or lacking skills that are required for today’s business market.

Have a professional come in to audit, and work with you to re-organize your business, inclusive of its business plan. What worked for you in the last three years, may not have worked for you this year. If you do not adapt to a world with industries, competitors, and channels of communications that are transforming all the time, your revenue stream is going to decline rapidly.

5. Focus on retaining & boosting customers

The best way to get yourself out of a financial struggle is a nice injection to your cash inflow. Analysing your current marketing and sales strategy to implement new strategies for boosting conversion will have a very positive effect on your revenue stream.

Meanwhile, make sure to collect any outstanding payments owed to you. Cash could very likely be hiding in your accounts receivable without your knowledge and the importance of this cash boost is incremental.

So don’t panic as financial instability is something that many business’ experiences, however once through the troublesome phase, implement some cash flow forecasting strategies that will help you monitor financial progress more effectively to prevent this problem from reoccurring. Furthermore, have pre-planned contingencies in place so that you can combat any financial downfalls efficiently and effectively in the future.

Types of Financial Problems

Relatively few people find personal financial matters easy to stay on top of. Just about everyone runs into financial difficulties at least occasionally, sometimes even when everything else seems to be going well.

Being familiar with the most common sorts of financial problems and mistakes can make it easier to avoid them. The six financial issues that follow regularly trip up people from all walks of life.

1. Too Many Debts

Borrowing is not always irresponsible and can actually be the most appropriate and productive financial option. In most cases, weighing the sum of a household’s debt against disposable income will give an idea as to whether a reasonable balance has been achieved.

People who borrow from too many sources, though, sometimes end up struggling regardless. Issues like monthly minimum payments associated with each individual loan can make it overly difficult to keep up with what would ordinarily be considered a reasonable level of debt.

Companies like the one online at debtconsolidationnearme.com can help in many such cases. Simply consolidating a number of debts into one with a lower monthly obligation will often make life a lot easier.

2. Excessive Reliance on Borrowing

Borrowing to pay for a home or an education can easily be prudent and advisable. On the other hand, people who rely on debt just to make ends meet tend to have a painful reckoning awaiting them.

Should it start to seem like borrowing is the only way to keep up with household expenses, taking action will always be the best policy. Steps as simple as creating a detailed budget can enable much-needed relief.

3. An Overly Expensive Home

The size of the average home in the United States has been growing steadily for many decades. Many people go with the flow and end up in homes with sizes exceeding their needs and prices they cannot afford.

Living in a home that is simply too expensive will always add a lot of pressure to a family’s budget. Downsizing to something more modest and affordable can make a definite difference.

4. No Emergency Fund

Saving for a rainy day is almost always appropriate. Unfortunately, many people fail to put away much money and end up suffering because of it later on.

Building an emergency savings fund should generally be seen as nearly as important as keeping the lights on and food in the refrigerator. While that might be something of an exaggeration in practice, such a perspective will make it easier to resist the temptation to spend instead of saving.

5. Overusing Home Equity

A family’s home will often be its single most valuable asset. Paying down some of the principal on a mortgage will generally open up opportunities for borrowing at relatively low interest rates.

Unfortunately, tapping home equity ends up being a trap for many Americans. When home equity borrowing starts paying for vacations and other luxuries, it will often be best to take a hard look at the habit.

6. Failing to Invest Appropriately

Saving alone is not enough to end up financially secure in retirement. Investing wisely is what it takes to make savings grow and compound over time.

Even simply keeping too much money in a checking account for too long will impose a significant opportunity cost. There are uncertain times when it makes sense to have a lot of cash on hand, but they are the exceptions to the rule.

Financial Problems Solutions

Whether your personal finances are a temporary worry or a constant source of stress, the good news is that you don’t have to face these issues forever. For every financial problem, there are solutions that can help you adjust your financial strategy and improve your ability to save for the future.

Here are the top 10 problems U.S. consumers face and expert-approved ways to overcome these obstacles.

1. Monthly spending exceeds income.

Many consumers struggle with the basic challenge of having an income that doesn’t cover their expenses. The first step to overcome this obstacle is to set a monthly budget that categorizes expenses to rein in excessive spending. But depending on the gap between your monthly income and your financial costs, you may need to consider getting a second job, requesting to work overtime, or seeing if your employer can give you a raise.

2. You can’t get out from under car payments.

Car payments can eat up spare income every month, and if you’ve recently upgraded your vehicle, you might feel like you’re always making car payments but never paying your vehicles off. By changing the way you approach car purchases, you could reduce your losses and minimize the cost of car payments.

“One way to reduce car payment debt is to buy used cars, which come at a lower price and depreciate slower than new vehicles,” says Shelli Schroeder, Chief Operations Officer for Oklahoma Central Credit Union. “Then when you go to trade in that car, you’ll have greater trade-in value and your new car payment will be smaller as a result.”

3. You carry a credit card balance every month.

Credit cards charge high interest fees on any balance carried over from one month to the next. As you re-evaluate your budget and work to reduce expenses, make sure your income is also able to pay off credit card balances every month, saving yourself from fees that push you further into debt.

4. You don’t have an emergency fund.

Life events like a loss of income, car breakdown, hospital visit or other unforeseen event can put consumers into a hole if they don’t have an emergency fund at their disposal. Even a fund of $1,000 can save you from having to take on credit card interest or open a personal loan.

Dedicate part of your monthly budget to save for this emergency fund. Even contributions of $50 a month can add up quickly, creating a buffer that will come in handy when a rainy day hits.

5. Your rent keeps going up.

Rising rents across America are pinching consumer budgets, and many consumers find themselves wondering if it makes more sense to buy instead of rent.

While there are a number of things to consider, including your household income and your willingness to stay in a purchased home for at least five years, it’s worth looking at a rent vs. buy calculator or talking to a financial advisor to determine whether buying can save you money and start building equity in a real estate property.

6. A new baby brings unexpected costs.

Children are expensive. Everyday items like diapers, formula and baby food can stress monthly budgets and checking accounts even before new parents face the cost of daycare and other unavoidable expenses.

If possible, plan ahead and start saving for these expenses before they hit. Even if you do manage to put away some baby-specific savings, you may still need to look at your budget and create space in your monthly spending to accommodate these new demands.

7. You owe the hospital for medical care.

Medical bills can be a significant financial burden, especially if you’re someone who doesn’t have insurance, or you do, but it’s a high-deductible plan. But hospitals are used to dealing with patients who can’t afford to pay their bills in full, so take advantage of your options to reduce the cost and spread it out over time.

Some hospitals, for example, are willing to reduce the amount owed in order to get payment. And many are willing to talk about a payment plan that lets you slowly chip away at your bill over time. These options could help you pay off your debt in a manner that doesn’t destroy your personal finances.

8. Your student loan debt limits your financial capabilities.

Large student loan debts can demand payments that limit your ability to buy a home or increase your savings. But delaying the payment of these debts only results in paying more interest over time. Consider taking whatever approach to debt reduction that helps you meet your goals:

Borrowers have the option of refinancing at a lower rate to reduce the amount owed, or they could increase their monthly payments to pay off debt faster. Either approach could alleviate your student loan burden while creating opportunities to rebuild your finances.

9. You aren’t saving enough for retirement.

Many U.S. consumers are worried they aren’t saving enough for retirement. But it’s never too late to start trying to catch up. If you aren’t maximizing contributions to a 401k, put as much tax-deferred money as possible into these accounts, and be sure to maximize matching.

“If you’re able to put money into additional funds, consider opening an extra IRA to build that retirement fund and secure your future,” says Brad Scheidt, Executive Vice President for Oklahoma Central Credit Union. “Take advantage of these savings vehicles to lower your tax burden and earn interest for your golden years.”

10. You feel overwhelmed by financial matters.

Personal finance is a complex subject, but it has implications that will affect you the rest of your life. If you’re feeling overwhelmed or confused by your own financial situation, it’s worth the time and money to take a financial literacy class. Your local credit union may have additional educational resources to help you better understand your finances and what you can do to overcome financial challenges.

Financial challenges may sometimes seem insurmountable, but there’s always a way to address these obstacles and build a better financial future. It may not happen overnight, but with patience and persistence, you can take steps to strengthen your financial outlook and put these challenges in your rear-view mirror.

How to Solve Financial Problems in Family

During times of hardship, one of the first places many people turn for help is to their loved one and family members. Often people fall into financial difficulties if they experience the sudden loss of a job or are impacted by expensive medical bills. Many well-meaning family members have found themselves sucked into the financial abyss by the problems of a loved one.

Let’s take a look at a few options you can consider to help your family members in financial trouble without hurting yourself in the process.

1. Give a Cash Gift

If your loved one is having a short-term cash flow problem, you may want to give an outright financial gift. Decide how much you can afford to give, without putting yourself in financial jeopardy, and then either give the maximum amount you can afford all at once (and let your loved one know that’s the case) or perhaps give smaller gifts on a periodic or regular basis until the situation is resolved.

Make sure it’s clearly understood that the money is a gift, not a loan to be repaid, so you don’t create an awkward situation for the gift recipient.

If you’re considering giving them a substantial sum of money, you’ll need to keep an eye on the annual gift tax exclusion set each year by the Internal Revenue Service (IRS).

2. Make a Personal Loan

Your family member may approach you and ask for a short-term loan. Talk frankly, clearly write out the terms of the loan on paper, and have both parties sign it. This will help ensure each party is clear on the financial arrangement they’re entering into. Some loan details you’ll want to include are:

• The amount of the loan
• Whether the loan will be a lump-sum payment, or if it will be divided and paid out in installments upon meeting certain conditions (e.g., securing another job or paying down existing debt)
• The interest rate you will charge for making the loan and how it will be calculated (compound or simple interest)
• Payment due dates (including the date of full repayment or final installment due)
• A recourse if the borrower doesn’t make loan payments on time or in full (e.g., increasing interest charges, ceasing any further loan payments, or taking legal action)

If you are going to lend more than $10,000 and/or you’re going to charge an interest rate that is substantially different than the going rate for most borrowers, you may want to talk to a tax professional. There can be unique tax implications for low-interest loans among family members.

3. Co-sign a Loan

Your loved one may be interested in obtaining a loan or line of credit (LOC) to help with short-term financial needs, but what if his or her credit requires getting a co-signer? Would you be willing to co-sign on a loan or LOC from a bank, credit union or online lender?

Before simply saying “yes” and essentially lending a family member your good credit, it’s important to realize there are legal and financial implications to co-signing on a loan. The most critical thing to understand is that you are legally binding yourself to repay the loan if the other borrower fails to do so.

The lender can take legal action against you and require that you pay the full amount, even if you had an agreement between you and your family member that you would not have to make payments.

This delinquent loan will also now affect your personal credit. So if your sister/brother/uncle fails to make payments on the loan on time and in full, the lender can report the negative account activity to the credit bureaus to file on your credit report which, in turn, can lower your credit score. 

Co-signing a loan is serious business. The fact that your family member needs a loan co-signer means the lender considers them too great of a risk for the bank to take alone. If the bank isn’t sure they’ll repay the loan, what guarantees do you have that they will? It may also mean that you could have more difficulty getting a loan for yourself down the road since you are technically taking on this loan and its payment as well.

Before co-signing for a loan, make sure you:

• Ask for a copy of your family member’s credit report, credit score and monthly budget so you’ll have an accurate picture of his or her finances and ability to repay the loan.
• Meet with the lender in person (if possible) and be sure you understand all the terms of the loan.
• Get copies of all documents related to the loan, including the repayment schedule.
• Ask the lender to notify you in writing if your family member misses a payment or makes a late payment. Finding out about potential repayment problems sooner rather than later can help you take quick action and protect your own credit score.

4. Create a Bill-Paying Plan

Often, people in a financial crisis simply aren’t aware where their money is going. If you have experience using a budget to manage your own money, you may be able to help your family in creating and using a budget as well. To break the ice, you may want to offer to show them your budget and your bill-paying system and explain how it helps you make financial decisions.

As you work together to help them get a handle on their financial situation, the process will point out places where they can cut back on expenses or try to increase their income to better meet their financial obligations.

5. Provide Employment

If you’re not comfortable making a loan or giving a cash gift, consider hiring your family member to assist with needed tasks at an agreed-upon rate. This side job may go a long way toward helping them earn the money they need to pay their bills and help you finish up any jobs that you’ve been putting off.

Treat the arrangement like you would any other employee – spell out clearly the work that needs to be done, the deadlines and the rate of pay. Be sure to include a provision about how you’ll deal with poor or incomplete work.

6. Give Non-Cash Assistance

If you’re uncomfortable or unwilling to give your family member cash, consider giving non-cash financial assistance, such as gift cards or gift certificates. You’ll have more control over what your money will be used for, and you can easily buy gift cards in varying amounts at most stores.

7. Prepay Bills

You may want to consider prepaying one or more regular bills your loved one receives (rent/mortgage, utility bills, or insurance premiums) to help them during their current financial crunch. Offering to do something, such as making their car payment, may help them avoid a short-term crisis and give them the little extra time they need to work out of their situation.

8. Help Find Local Resources

You simply may not wish or be able to provide your family member with financial assistance or hands-on help. But you can still play a key role by helping them find local professionals that can steer them in the right direction, such as:

• Career counselor and employment agencies
• Welfare agencies and similar services
• Credit and debt counselors
• Lenders who can provide short-term solutions

How to Become Financially Independent in 5 Years

Five years is a very short amount of time to achieve financial independence. That said, if your finances are already in a good place, it’s certainly not impossible or unheard of.

1. Examine Your Finances in Detail

In order to reach FI, you need to spend less than you make. You’ll need to know exactly what you are earning and what you are spending. Take time to examine your finances in detail. Create a way to track expenses and review your spending.

2. Work to Pay Off Debt

In order to find financial freedom in 5 years, you’ll need to get rid of your consumer debt. This means paying off student loans, credit card debt, and even your car loan. By paying off debt, you’ll reduce your monthly expenses while freeing up funds to save for financial independence.

3. Cut Your Expenses

Since you’re working in an accelerated time frame to reach FI, it’s wise to cut certain expenses so you can save (or invest) even more money. Start small by cutting out impulse buys and subscriptions you don’t use. Then, work your way toward cutting down on the major expenses like groceries, bills, and even housing costs.

4.  Increase Your Income

Saving and investing enough money for financial independence likely won’t happen just from cutting expenses and living a frugal life. You should consider ways you can increase your income in these 5 years to financial independence. This could look like a second job, starting a side hustle, or asking for a raise at your current job.

5. Invest Strategically

Financial independence in 5 years won’t be possible unless you invest strategically. Focus on finding the best investments to generate powerful passive streams of income over the long run. You will likely decide to max out several investment accounts each year – from your 401k to an IRA. 

The FI community swears by both real estate investing and index funds as paths to generating wealth. Do your own research and develop a strategy that works for your time frame. If you need assistance, consult a financial advisor who has worked with clients that want to be financially independent and retire early.

6. Try Saving 80% of Your Income

If you want to reach financial independence in 5 years or less, your savings rate is going to need to be astronomically high (up to 80%). If you follow the steps above and truly live frugally while increasing your income, this is possible to obtain. If you can wait a few more years, then you won’t need such a high savings rate which is not realistic for many households.

How to Improve Your Finances

When you think about improving your finances, you probably think of things that will take years to accomplish. Saving for retirement. Buying a home. Paying cash for a car. Making six figures. And then, when the long timeline of these goals becomes apparent, you get frustrated.

While your finances do include a lot of big, long-term goals like these, your financial situation is also comprised of many smaller goals, decisions, and activities that are much easier to manage. Because they’re small, it’s tempting to think that they don’t matter. But, here’s the good news: Taking care of the small things is what makes your big financial goals possible. With that in mind, here are 10 things that you can do in an hour or less to improve your finances.

1. Switch Banks

If your bank is charging you a lot of fees or not paying competitive interest rates, you’re losing money. It’ll take less than an hour to research alternatives and make the switch.

2. Open a Savings Account and Fund it With Direct Deposit

If you already have a savings account, you’re halfway there. If not, find one with a great interest rate and set up an account. Then have your employer directly deposit $25 or more every pay period. If you can’t get direct deposit, set up an automatic transfer from your checking to your savings. The money will grow without much effort on your part and, chances are, you won’t miss what you’ve never seen.

3. Comparison Shop Your Insurance

At least once a year, take an hour and make some phone calls to other insurers to comparison shop. You might be surprised to find that you can lower your auto, home, or life insurance premiums by quite a bit.

4. Reduce Your Credit Card Interest Rate

Paying outrageous interest on your credit card? Call your card issuer and ask (politely) for a lower rate. If you’re a good customer in good standing, you can probably get the rate reduced. Ask for a supervisor if the first rep won’t help you.

5. Comparison Shop Credit Cards

Number 4 didn’t work? Don’t worry. There are tons of cards on the market, many with 0% or super-low interest offers on balance transfers. Check www.CreditCards.com for a list of cards that match the criteria you want, find your new card, and transfer your balance. Boom. You’re saving a ton of money in interest.

6. Lower Your Monthly Bills

Call your cable and cell phone providers and ask if you’re getting the best deal. New offers pop up all the time, so your current plan may not be the most cost effective anymore. If you’re aware of a better offer from a competitor, mention it. Your provider may match it. And if they won’t match, switch to the competition.

7. Lower Your Bill Some More

Comb through your bills and look for things you don’t use (or use enough to justify the cost), like premium channel packages, insurance or protection plans you don’t need, unlimited texting or data, subscriptions to papers or magazines you don’t read, and so on. If you’re not using it or getting your money’s worth, drop it.

8. Learn One Thing

It’s amazing what you can learn in an hour with a quick search online or a trip to the library. Find something about your finances that you don’t understand and figure it out. Maybe you want to know what an ETF is or whether you need life insurance. Maybe you don’t understand how credit cards calculate interest. Learn it. The more you know, the better you become at managing your finances and making good decisions.

9. Set Up an IRA or Contribute to Your 401(k)

You keep saying you’ll get around to it someday, so take an hour and set up an IRA at your bank or a brokerage like ING or Fidelity. Alternatively, sit down with your benefits manager and fill out the paperwork for your 401(k). Don’t worry if you can only afford a small contribution. It’s better than nothing and if your employer matches your contributions, that’s free money.

10. Find Your Biggest Money Drain and Plug It

Ever said, “I don’t know where it all goes?” Sit down with your bills and statements and figure out where your money is going. Do you eat out a lot? Entertain too much? Shop too often when you don’t need anything? Have a $10 per day Starbucks habit?

If you’ve got a habit that’s costing you big money, find a way to plug that leak. Bring your own coffee to work. Brown bag your lunch. Host a pot luck dinner instead of paying for everything. Find a free hobby to take the place of wandering the mall.

Not every financial improvement has to take years to accomplish. There’s plenty you can do to improve your finances over your lunch hour or in a spare spot of time on a rainy Saturday. The trick is to stop thinking it won’t make a difference and realize that even the little things add up to big bucks down the road.

Keys to Financial Freedom

As you create that list of financial goals and resolutions, add these five goals to your list to ensure your next 12 months bring you closer to a life of financial fulfillment:

1. Build that emergency fund

You’ve heard us mention this concept time and time again, and for good reason! Life can get tricky and present all sorts of challenges. If 2019 was a year of ups and downs for you, then you likely know how important it is to have that emergency fund handy so that you can sleep better at night when life throws you in an inevitable curveball.

Aim to save 3-6 months of your income in a high-yield savings fund that you can use if disaster should strike. Pro-tip*: automate your savings from your checking account to your savings account to make this process much easier for yourself!

2. Take advantage of compound interest

While money is one of those things we always want more of, time is truly the one asset you cannot replace or “get back”. Therefore, take advantage of the time on your side and begin investing in yourself and your retirement as soon as possible.

Even the smallest contribution to your retirement plan or investing account can make a big difference over time thanks to the miracle of compound interest. Give yourself every chance of growing a sizeable endowment by getting started today. After all, it is better to start small than not start at all!

3. Stick to your budget

There really is no better way to understand and get a handle on your finances than by monitoring and adjusting a monthly budget. It may seem tedious to track your expenses but with the sheer prevalence of budgeting apps available, it has never been easier to get a detailed view of exactly where all those dollars of yours seem to be going.

This next year, stick to your budget for at least 3-6 months. We have a feeling that in time, you’ll begin to see measurable changes to your money habits and spending behaviors as a result of tracking these expenses and making adjustments in real-time.

4. Boost your income

Now, we know it is not always easy to boost your overall salary or take-home pay, BUT there are so many ways you can reduce your expenses on an everyday basis. Even just implementing a few subtle changes to your spending habits can save you money on everyday expenses which will ultimately allow for more spending money/income at the end of the day.

However, if increasing your salary is at the top of your list for this next year then YOU GO GIRL! Take on a side hustle, negotiate for a raise, or pick up some additional hours or shifts in your freelancing gig.

5: Stay in your own lane

These days, there is no shortage of things to admire from afar. Social media has made it so easy to stay connected to friends, yes, but has also somehow made it impossible to enjoy the things we do have without focusing on those that we don’t have.

One of the best things you can do in your life is to focus on the things you can control instead of coveting what you don’t have or constantly wishing for things to be different. The key to financial freedom is truly so simple: stay in your own lane.

Instead of wishing for what your neighbors seem to have or that co-worker that has it all together, remember that we’re all out here just trying to do the best that we can possibly do. You will never be able to see what’s really going on beneath the surface, so aim to focus not on what is outside your control and instead, focus on becoming a better version of yourself each and every day.

How do You Overcome Financial Anxiety?

It could take time to change your financial situation. And if you’re suffering from severe anxiety, you might want to consider seeking more information or professional help. But by focusing on the things you can control, you might be able to take small steps toward reducing the stress you feel. Here are six ways you can start:

1. Set Goals and Plan Ahead

Whether you’re planning for retirement in a few decades or a vacation in a few months, setting goals can help you get there.

When you plan in advance for a large purchase, it can help you better achieve your goals and reduce anxiety around the purchase. No matter how big or small your goals, the CFPB has tips to improve your financial well-being.

2. Build an Emergency Fund

You can start as small as you need to, but consider building an emergency fund. Having one in place could help you be better prepared and less stressed about unexpected things like car breakdowns, medical emergencies and job disruptions. 

3. Keep Track of Bills and Earnings

Understanding how money flows in and out of your household can make it easier to examine your spending and create a budget. Tracking your spending for a month is a good way to see just how much the small expenses can add up. These can prevent you from meeting your more important goals.

The CFPB has budgeting advice to help you analyze your cash flow and take control of your finances. And understanding your cost-of-living expenses can also help you make more-informed decisions about spending and saving.

4. Shop Carefully

If you’re having trouble balancing your budget, there are ways to reduce your spending and expenses. You’ll always need things like food, gas, clothes and toiletries. But the Federal Trade Commission has shopping tips to help you get the most for your money.

If you’re shopping online, you could check out Capital One Shopping. This free browser extension searches for available coupon codes and automatically applies the best it can find.

5. Understand Your Credit Score and Credit Reports

Understanding your credit reports and regularly monitoring your score can help you improve your creditworthiness. And seeing good progress is likely to motivate you to keep up the good financial behavior, according to the CFPB.

CreditWise from Capital One can help, too. It lets you monitor your credit for free. And it’s available to everyone, not just Capital One customers.

6. Look for Help

If you suspect the coronavirus pandemic has caused or worsened your financial anxiety, you might find it helpful to check out government assistance for things like unemployment, mortgage and rent relief, and student loan forbearance.

And if you’re having trouble paying bills or loans, the CFPB recommends reaching out to creditors and lenders directly. They may be able to provide information or hardship options that can help. 

Don’t forget: You can explore mental health support for anxiety while you consider practical steps to improve your financial wellness.

How do You Control Your Expenses?

Try these four simple steps to help you understand your spending, simplify your finances, and even keep a little more in the bank each month.

1. Direct Deposit

If you don’t get your paycheck by direct deposit, you’re wasting valuable time standing in line to deposit it (and possibly costing yourself overdraft fees). But if your check goes right into your account on payday, you know the money will be there when your bills come out, and you won’t have to worry about making it to the bank before it closes on Friday.

To simplify your finances even further, set up an automatic deduction to divert some of your paycheck into a savings or retirement account—if that money never even touches your checking account, you’ll be much less tempted to spend it!

Contact your bank to get information on savings accounts, money markets, or Roth IRAs, or look into 401(k) or 403(b) plans with your employer. Once you’ve decided on the best option for you, direct at least $50 to this savings or retirement account each month.

2. Auto Pay

Car insurance, rent, utilities, your cell phone. You probably have more monthly bills than you care to think about—but regardless, you need to stay on top of how they get paid.

This one’s easy. Set up automatic payments, either through your service providers directly or via your bank’s online bill-pay, and you’ll stop having to worry about late fees—plus you’ll save on postage and sometimes even get a small discount! Sounds like a simple change, but according to David Bach, the Today Show’s financial guru, automating your finances is the best decision you can make for your money.

And don’t worry about the amount of your bill changing without you realizing it—most companies will still send you written notice before any increases or adjustments to your account.

3. Track Expenses

Let’s face it: You probably forget about many of the small swipes you make multiple times a week—snacks at the gas station, Starbucks runs, a sandwich on the go—which can leave you wondering where all your money went at the end of the month.

So what’s the best way to keep track of everything? I’ll admit to actually enjoying balancing my checkbook, but don’t worry—you don’t have to: There are tons of tools out there that make it super easy to keep track of what you’re spending. If you want to actually write everything down (experts say this will make it more real), I recommend the Mead Budget OrganizHer available at Target.

If you hate writing down every little swipe, sites like Mint.com or LearnVest will automatically pull information from your bank accounts, credit cards, retirement accounts, and loans to analyze where your money is going. Both sites also have tools to help you set a monthly budget (with categories!), set savings goals, find money-saving tips, and more.

4. Review at the End of the Month

One of the most important parts of budgeting is evaluating how you’re doing and adjusting as needed. So, at the end of the month, sit down (Grab some ice cream! Make it fun!) and review where your paycheck has gone. How much did you spend on eating out? Are you paying your bills on time? Do you have any money left over that you could put in savings or toward a credit card?

When you sit down to compare your budget to your actual expenses for the first time, you’ll probably be surprised to see what the numbers tell you about the state of your finances. But, being honest with yourself is the only way you’ll be able to make progress, set reachable goals, and get on the path to a secure financial future.

How Can We Avoid Financial Problems?

If you can reduce your financial worry, you will be able to focus on other important areas of your life and relax, knowing you have a plan to handle your financial situation. Here are a few things you can do now to relieve your financial stress and make it easier to function each day.

1. Create a Budget

You may feel overwhelmed and think that a budget is only going to add to your financial stress, but it is the best tool you have to get control of your finances and stop worrying about money.

A budget allows you to decide when and how you are going to spend your hard-earned dollars. This spending plan makes sure you cover your immediate expenses, while still working toward your savings goals. It can also help you find extra money to put toward debt.

The first few months of planning and sticking to a budget are the most challenging, but once you understand what to do, you can often reduce the amount of time you spend on it, and in turn, reduce the amount of time you spend worrying about money. 

2. Get an Emergency Fund

An emergency fund is a savings account meant to cover unexpected expenses and financial emergencies. Although a car repair can be expensive and stressful, if you know you can tap into your emergency fund to cover it, a lot of the stress will go away. It is also easier to use the money in your budget the way you planned if you know you have the extra money in the bank ready to cover the unexpected emergencies that may crop up.

You should have at least $1,000 in your emergency fund until you are out of debt. Then you should aim to have three to six months’ living expenses set aside. 

Building an emergency fund may seem tough at first, especially if you are struggling to make ends meet each month. Start by putting aside a small amount, whether it’s $10 or $100 each month, so you can build up your emergency fund. You may also consider selling any unused items around the house to build up that cash as quickly as you can.

3. Get Outside Help

If you are really struggling with getting a handle on your budget and spending issues, do not be afraid to get outside help. You can take classes on basic money management and investing, which will help you plan out a budget and do the things you need to succeed financially.

A financial planner can also help you create a long-term saving and investing strategy that will help you take care of your current needs and plan for the future.

If you are feeling overwhelmed by debt, you can work with a credit counseling service to help you restructure your debt and, in some cases, negotiate with creditors. You can also take financial classes that coach you through budgeting and other aspects of your personal finances. 

4. Determine What You Can Change

If you are having financial issues, you may have an income issue, a spending issue, or a combination of the two. If you know that you do not make enough money to keep up with your current bills, decide what you can do to change the situation. It may include options such as going back to school to qualify for a higher paying job.

If you think you have a spending problem and it’s a compulsive behavior, you may want to attend a specialized group or get professional help dealing with the issues you are facing. Once you have a plan that will help you change your situation permanently, you should be able to reduce your stress. 

5. Track Your Progress

While this may sound like it’s not a solution to your financial problem, it can make a big difference in the amount of stress you feel each day.

Find positive aspects of your financial situation by tracking your progress toward your financial goals. Looking at the positive aspects of your current financial situation can also help alleviate stress. 

Remember, you can change your financial situation and you will find it easier to do if you are not living in an anxious state all of the time.

How Can we Get Rid of Financial Crisis?

1.  Identify the Problems

The first step to overcoming financial crisis is to identify the primary problem that is causing difficulties. Financial problems are generally an indication of a larger issue and to come up with long run solutions, you have to identify the actual cause of your financial troubles.

The idea behind the importance of uncovering a specific problem is to come up with a permanent solution. Just like a leaky tap in your house; placing a bucket below it is a temporary solution. Fix the tap and the leak will stop permanently. Rather than dwelling on your stress, focus on resolving the problem that’s causing your financial problems.

2. Create a Budget

One of the best ways to deal with financial problems is creating a budget plan. A budget is a weekly, monthly or a yearly spending plan for your money that guides your spending decisions on important stuff for you. As you create your budget, it’s important to track your expenses for at least a couple of weeks (a month is best) to objectively see where and how much you are spending.

Once you are able to get realistic numbers from your budget, you can review your budget critically and seek out areas where you can save. Things like spending less on eating outside, spending less on entertainment or hobbies, taking lunch from home to work rather buying it are things that don’t make you miserly or restrict your budget. They just allow you to go after bigger things with less stress, like paying off your mortgage.

3. Set Financial Priorities

Determining your financial priorities is essential to overcome any financial crisis. These priorities help you to make tough financial decisions such as paying off your credit card bill, paying your mortgage or saving up for house repairs for your family; setting priorities will help you solve your money troubles and get back on track.

Your financial priorities should include looking into new ways to have money coming in too, like a second job, downsizing your home, or even using assets you have like a mortgage to leverage financial flexibility for yourself.

4. Address the Problem

For most people, financial problems can be addressed by reducing expenses and increasing income, or a little combination of both, but it might be not be the ideal option for everyone. For humans, changing lifestyle is the most difficult task, but given the money crisis situation, we are forced to make changes.

So to deal with it, take small steps to accomplish your goals because big changes are always much harder. For instance; if you’re running $50 short every month, then perhaps you should first pay off a small credit card debt that requires a $50 minimum payment each month.

By taking small steps get the card paid off, and then permanently have $50 extra to use in your budget every month or use it for the payment of another debt, and get all of your debts paid off more quickly.

This methodology is called the “snowball effect”; putting all extra money towards one debt to pay it off faster and then use the extra amount towards eliminating the next debt. It is very useful method for paying debts off faster.

5. Develop a Plan and Track Progress

Once you have ideas to tackle your financial difficulties, come up with a realistic plan to accomplish your financial goals with a timeline of weeks, months or years and track your progress continuously. For example, if your goal is to pay off a $2,000 debt, make a plan and create a timeline with the amount of money you will pay every month so that you can pay it off within your desired time frame.

Once you are on the road to achieve it, take a few minutes to review the progress. Evaluate and assess your plan, see if you are making progress toward your goals and be open to the possibility of fine-tuning the plan.

What Causes Financial Stress?

Financial stress can occur in many situations and under various circumstances – what causes one person financial stress may not impact another. Some situations that might cause financial stress include losing your job or being retrenched, long term unemployment, being unable to get full time work, inability to pay your bills or not being able to deal with the increasing costs of living.

Worrying about money is not uncommon, however, if it is affecting your physical or emotional health and relationships it is important to seek help.

Financial stress can significantly impact your health and relationships with others. Some common signs to look out for include:

• Arguing with people close to you about money
• Withdrawing from others
• Feelings of guilt about spending money on non-essential items
• Worrying a lot or feeling anxious
• Difficulties sleeping
• Headaches
• Tiredness and lowered energy
• Struggling to feed yourself and/or your family
• Increasing debt from credit cards or loans
• Receiving legal action for debt recovery
• Fear of eviction by being behind in rent or loan repayments
• Income does not cover expenses

What Factors Influence Your Financial Future?

Lifestyle

The house you live in, the car you own, the vacations you take every year and your ability to guilt-spend in a greater capacity – all these are indicators of your standard of living. Your lifestyle is a major factor that decides the path your investments are going to take in the future. As said, higher the standard of living, the greater would be the investments.

Appetite for risk

Many times, windfall gains are a direct result of higher risks taken. However, there is a downside to this – you can lose everything you own too. Each person has their own appetite for taking risks. Some are naturally more comfortable taking risks than others.

The other category of people who like to take either no risk or measured risk are termed as being risk averse. Your financial plan will shape up in line with your capacity to take risks. It goes without saying that your returns are directly related to your risk appetite.

Time

Time has a direct relation with one’s financial goals and also is an important factor while choosing investment products. The golden rule is to start investing as early as possible. If you are asking the question today – when should I start investment? Then the answer is yesterday.

Read Also: How to Get Better with Money

The simple idea behind starting investment early is that it gives you the benefit of time being on your side. Early in financial planning one is able to choose investing in high risk, high return products since they can afford to take more risk and in case of losses rebuild or repair their portfolio over a period of time.

Level of Income

If you are an entrepreneur, you know how the level of income can change rapidly. The risks involved for someone taking a salary is far higher of losing his/her job leaving them with no income. Financial planning can benefit people at all income levels. Whatever is the level of income, your financial plan should cover for savings and investments; planning for retirement, education, emergencies, major purchases, and other financial goals; and insurance needs.

Influence of Knowledge

If you have a good grasp of your own finances and how they work for you, you are one happy individual. Financial planning gives you an edge over others by providing a better understanding of financial concepts and helping you to achieve proper control over your investments. Once you know where you’re headed and how long it will take to get there, then you can look at your financial plan to find out if you’re spending more money than you’re making.

What Financial Decision Making Strategies Can You Use?

Here are several concrete suggestions to make better strategic financial decisions:

1. Get accurate and timely financial data before making long-term financial decisions.
   Smart business owners let accurate data inform their mission-critical moves. It still shocks me to see the number of small and medium size companies who make big decisions with inaccurate or grossly incomplete financial information.
2. Review your strategic pricing decisions.
   Most businesses set their prices when the business is new and desperately needs business, and as a result, set pricing levels low. Over time, the business may make nominal increases to pricing every few years, but rarely does the owner ever sit down and fundamentally rethink his pricing model.Do you price in relationship to your costs and your competitors? The most successful companies take both of these factors into consideration, but they also price in relationship to the cost of the status quo for their customers.How much is the problem that your product or service solves already costing them? What is the real value of your product of service? What is the “frame of reference” you could give your customers that would help them immediately see your product or service as both the logically sound and emotionally satisfying solution?
3. Consider changing how you charge.
   Is there a way you can move from a one-time charge to an ongoing revenue stream?Perhaps you do have a one-time charge for the initial purchase, but is there a way you can provide ongoing value to service your client on an ongoing basis?The smartest business models allow companies to annuitize their business relationships.
4. Find the optimal staffing level and manage your hiring intelligently.
   Look for a simple heuristic that helps you know when you need to hire more production and operational staff (e.g., sales per employee, projects per operations staff, etc.) and when you are too heavy.What are the indicators that alert you to the need to staff up or staff down? What investments could you make in technology, systems, and training that would allow you to produce more with fewer people?Note that generally “A” players produce multiples more value than B or C players, yet cost only a percentage more.Constantly be on the lookout for ways you can upgrade your team over time so that you can produce more with less.
5. Get clear, fresh perspective before you make a major capital investment.
   All too often, business owners find a succession of small commitment steps lead them over the edge of the cliff when making the big infrastructure and capital decisions.They let sunk costs and vested interests that they are afraid of losing push them to chase bad money with good.After you have gathered all the relevant facts, step back with your leadership team and ask the question fresh: “Knowing all we know today and imagining that we had no sunk costs at this point at all, what is the best decision for the business over the short, medium, and long-term?” 
6. Know the difference between strategic expenses and nonstrategic expenses.
   Strategic expenses are those things that directly help you sell more or produce better. They include marketing campaigns that work, salespeople who sell, technology upgrades that reap real returns and ongoing advantages of significant value, and intellectual property barriers that give you a sustainable advantage for which the market will pay.Nonstrategic expenses essentially include everything else.Outspend your competition for strategic expenses–in good times and bad. Relentlessly cut nonstrategic expenses. And repeat this over and over.