If I remember correctly then there are some research works that prove that most people from low-middle income backgrounds who won a big lottery or jackpot, eventually go back to the same amount of money they had before after a while. And the reason is that most people are not prepared to handle large sums of money which they have never had and also, they don’t know how to manage their personal finances to increase their income. They believe that what worked at smaller levels will continue to work at higher levels as well. But that is often not true.
If you have a positive net worth and your finances are increasing, don’t relax too much and get complacent. You still need the discipline to continue managing your finances properly. And if you’re on the list of people with a negative net worth, then don’t worry. Things might seem tough but this is just the current situation that can be changed.
Let’s figure out how to manage your finances to increase your income and wealth over a period of time. Some tips that can help are discussed below.
Understand your Real Current Financial Situation
Start by analyzing your current financial situation before making any major decisions. This includes knowing with certainty the amount of money you have coming in and going out each month. A great way to do this is through budgeting practice, which can be improved by recording monthly income and expenses, setting spending limits, writing down required and optional categories, and trying to stick to the plan. Or you can use even use personal finance tracking apps that are freely available these days.
Once you have a clear picture of your expenses, you can start to look for ways to increase income.
For example, you can cut back all the unnecessary expenses from your consumption list. But you can only cut down expenses to an extent. A more practical approach is to look for ways to earn more. Try to move jobs with better compensation (and offering promotions) or if you have some skills that can be monetized, then try to earn some income through side hustles.
Don’t worry if you don’t get it right the first time. It requires patience and often takes several months for people to adjust to their budgets.
Start investing as soon as possible
Many people make the mistake of putting off investing because they think it requires a large amount of money. However, you can start investing with very little money. In India, you can start SIP in mutual funds with as little as Rs 500 per month. Outside India too one can start small as there are a number of investment platforms and brokerage companies such as hotforex review that allow you to start from just $5.
The important thing is to start as soon as possible. Don’t wait for the perfect day.
The sooner you start to invest, the longer your money will have the time to grow. And, thanks to the power of compounding, your early investments will have a greater impact on your overall portfolio than investments made later on.
Do read this example of how starting early and investing for just 10 years is more profitable than starting late and investing for 30 years. The detailed explanation is given here.
Find the sources of passive income
Who said you have to be content with one job and one salary, then suddenly become accidentally rich? Don’t get me wrong. I am not asking you to start moonlighting, which is not allowed in most cases. But you can still look at side hustles that occasionally pay you well.
Or if you already have some surplus (let’s say via bonus, incentives or inheritances) that you can invest it in a manner that it starts generating regular passive income for you. Just as an example, a Rs 1 crore fixed deposit interest amounts to Rs 50,000 in monthly interest income! If you don’t want to take risks with your funds then even a simple FD can generate income for you. But if you are open to investing in options which have better return potential, then you can even consider equity mutual funds.
Develop your financial psychology
This is easier said than done but is still necessary. The emotions and mental state that help dictate success or failure in investing is known as financial psychology. This includes different aspects of someone’s character and behaviors that influence their actions. Psychology is a vital factor in determining financial success. Knowledge, experience, and skill are all valuable assets, but if you don’t have the proper mindset, you won’t be successful in finance.
What does this mean? There are a few specific emotions and behaviors that are often associated with financial psychology, which can catalyze market movements. Most of this emotional behavior is driven by greed, fear, or regret. Try to take control of your emotional condition, because without a solid psyche you will never increase your income.
Remember Pareto’s 80/20 Rule
This 80/20 concept is surprisingly relevant to almost all fields of activity, including finances and investments. The Pareto principle states that for many outcomes, most of the consequences come from a small percentage of the causes.
In other words, a small number of things you do will have a big effect. This is important to understand because it can help you focus on the most important things so you can make the biggest impact.
The 80/20 rule in investing states that 20% of a portfolio’s holdings can account for 80% of its returns or growth, while the same percentage could also lead to losses of up to 80%.
There are a lot of factors that go into increasing your income. In fact, it is not just about finding new sources of income but also making sure you’re maximizing the potential of the income you already have and carefully managing your expenses.
Hopefully, these tips will be helpful as you work to increase your income and improve your financial situation.
To wrap it up, we just add that the main thing when planning to increase your income is to make up your mind, get out of your comfort zone, take a little risk and just starting. You can begin investing with small amounts too so explore bdswiss review. And don’t wait to have a big amount to start investing. Just start.