Humans are good at many things but following advice - even the best financial advice - is not one of them.
Whether it’s parental advice or a friend telling you to not drunk-text your ex, we all need some practice learning to follow good pieces of advice.
I used to be in the same boat.
When it came to managing my finances, I kept making the same mistakes – despite the will to do better next time.
I was able to break this vicious cycle thanks to Ankit (my co-founder). He created my financial plan and gave me a step-by-step approach to managing my money.
I am sharing the 3 best pieces of financial advice because they are easy to implement and will hopefully motivate you to take your finances seriously.
1. Make a budget and track your expenses.
Although I was making good money, I continued to live paycheck to paycheck because I was not budgeting and tracking my expenses.
It doesn't matter how much money you make, it always comes down to how well you manage it, which boils down to this simple equation:
I know creating a budget is boring and tracking your expenses is cumbersome. Yet, it’s one of the single most important steps you can take to improve your finances!
2. Start early.
We are the YOLO generation and as a result, most of us don’t start investing until we start feeling the pressures of adult life.
We make excuses like, "I don't make enough money" or "I have time, I'll start later" etc.
But the sad truth is - if you ask any adult, they will tell you that their single biggest regret is not saving and investing sooner.
Let me assure you, all those posts about the power of compounding are 100% true!
Fun fact: Warren Buffet Vs Peter Lynch
Did you know that Warren Buffet has an average annual return of 20% per year while Peter Lynch has generated an average annual return of 29% per year.
Yet Warren Buffet is worth approximately 125 billion dollars while Peter Lynch is worth approximately 0.5 billion dollars.
The difference is Warren Buffet (currently 91) started investing at the age of 11 while Peter Lynch actively invested only for 13 years.
3. Invest in your security first.
People who are new to financial planning have a very unstructured approach to managing their money.
They jump into investing in stocks, crypto or NFTs because "all their friends are doing it".
But these are the same people who panic when they incur losses because they forget to plan for emergencies.
Before you start investing, make sure you take care of yourself and your dependents (spouse, children etc.) by doing the following:
a. Build an emergency fund.
b. Get adequate life insurance and plan it properly.
c. Get adequate health insurance based on your health condition.
These 3 pieces of financial advice are the tip of the iceberg, but to start with, they are the only tips you need to build long-term financial stability.
I understand that it is in our nature to want to spend more than we earn. Often it’s difficult to prioritise the long-term – because it’s so darn far away!
In conclusion, if you want to make progress, as un-sexy as this sounds, you must follow these 3 pieces of financial advice: make a budget, start early and ensure security before investing.
Well this, and a lot of patience!