7 easy ways to improve your financial health

If you’re here, you are most likely looking for easy ways to improve your financial health and overall reduce your expenses. There is a simple solution to that, go live in a survival shelter in the middle of a forest where you will cultivate your on vegetables and hunt a few deer for your protein inputs. If you do that, you will spend no money to live – but you will probably make no money neither. Well, that’s one way to drastically reduce your expenses for sure, but that’s a bit tough. So if you are not down to give up all the XXIst century comfort to build your own shelter here are 7 levers you can use to better manage your finances:

1. Set savings goals

Defining goals is very important when it comes to personal finances because it gives a direction, a vision. I recommend to define both short-term and long-term goals. This way, you will always know where you want to go, and at what pace you want to go there. Once you will have define that, it will become easy for you to determine how much money you should save per month, what type of savings and investments you should select etc.

2. Track your money

Tracking is the key to success. When it comes to finance (at any level) there is only one source of truth, and that source is data. Tracking your revenues and your expenses you will get that data. How much do you really spend per month? If you don’t have a tracking system you cannot know. But then, how can you know if your spending habits are sustainable given your current incomes? You can’t.

The Personal Profit Balance:
Savings = Revenues - Expenses

We usually draw a lot of attention of the Revenues side of the equation. But the Expenses side matters in the same proportion. If you spend more than you earn you can’t save money and build your own financial assets. It’s that simple.

Tracking will allow you to be more aware of your current expenses and will then allow you to monitor how you are performing against the goals you’ve set.

3. Anticipate and plan your expenses

There are three main types of expenses a household must face:

1. Recurring must-have expenses (ex. rent or mortgage loans, electricity and water bill, minimum necessary food expenses like groceries)
2. Exceptional necessary expenses (ex. replace or restore a broken fridge, restoration work on your house, medical expenses, etc.)
3. Nice-to-have expenses (ex. restaurants, vacations, buy a new computer)

You need to anticipate that all three types of expenses will happen, and plan accordingly. I prefer using the words anticipating and planning rather than budgeting, as budgeting implies a strict framework to follow. However we know life doesn’t fit in predefined frameworks. The goal here is more to be able to adapt your plan based on the expenses you have to do, to always maintain a positive balance between earnings and spendings.

1. Recurring must-have expenses

For recurring must-have expenses, this is easy. There are already here each month, usually with a similar amount so you already know they are here.

2. Exceptional but necessary expenses

For the exceptional but necessary expenses, as the name suggests they are exceptional. You can’t really anticipate them but you need to prepare for them, by including in your budget an amount that can cover a decent part of it. But most importantly if an expense from this category goes above the amount you predefined, you must be prepared to cut from the third type of expenses, to not threaten too much your profit balance.

3. Nice-to-have expenses

Nice-to-have expenses are all those expenses that are not strictly necessary to live, but they make life more enjoyable. This is why I do think that this type of expenses is somewhat necessary too. But, they come last in the priority order. So if you had to buy a new fridge this month, then the last Iphone you crave to buy must wait a few more weeks. There is a bit of discipline to have here, but this is the only way to build positive spending habits, that will not damage your personal profit balance.

4. Build a positive environment around your new lifestyle

The process of building a sustainable personal finance management system can look tough. To help you overcome the friction of first launching this routine you can motivate yourself by seeing all the benefits that you will unlock thanks to healthier financials.

If you live in the US, if you can’t manage your finance correctly you will face significant drawbacks such as a reduced credit score (and thus insane interest rates), significant penalties, etc. But if you do manage your finance with a solid hand you can get significant benefits. Most credit cards companies will offer you benefits and cashback programs if you are a responsible customer. If your credit score improves, then the interest rates that you will get will be much lower, etc. So you will enter a virtuous circle. And this is that virtuous circle that you must visualize while you have to delay the purchase of the latest Iphone. And once the virtuous circle is engaged, you will just have to move within the flow, things will become much easier. You will have defeated the beginner’s friction.

5. Use the technology to your advantage

The XXIst century brought TikTok but also brought some very handy tools to facilitate your life and your finances. It would be a shame to not use it:

• Setup automated payments for your recurring bills (missing a recurring bill just because you forgot it is the most stupid way of damaging your credit score)
• Use spreadsheets or Notion or whatever tool you like to easily track your expenses
• Leverage internet and social media to look for promotions and discounts:
  • Systematically look for discount codes any time you make a payment online (you can browse manually or use specialized web extensions – this is a 2-minute action that can save 20% of your expenses on each online purchase, a pretty decent hourly earning rate).
  • Wait for special promotions periods such as Black Friday whenever you can
  • Use comparative websites to find the best deal (such as Kayak.com for flight tickets)
• Setup bank alerts when your accounts reaches certain thresholds
• Set automated transfers to your saving accounts, so that your savings become part of your routine

6. Use low-effort barrier techniques to better resist temptations

Changing your habits can be really hard. Even if you are highly motivated, temptations are everywhere and you can easily fall back and succumb to your old demons. But you can fight and win against that. The first thing is that you must be conscious of your current limits and accept them. Then, you will find techniques to overcome them with very limited efforts from you. I know it sounds very theoretical up to this point, so I let a few examples enlighten my thoughts:

• Withdraw your shopping day budgeted amount in cash. It is much easier with cash to track how much your spending and avoid overspending. When your run out of cash, it’s time to go home
• A more advanced version of this is to have different bank accounts, with one dedicated for nice-to-have expenses that you will feed on a regular basis based on what you have planned
• When not necessary do not take your credit card with you when you go out. It is always easier to resist the temptation if you can’t pay for it
• Use the I’ll-come-back-later rule: when you want to purchase something, do not purchase it right away. Come back later to buy it. This way you will largely reduce the amount of compulsive purchases. In most cases you will even forget to come back to buy that useless stuff
• Eat before going for groceries shopping. If you are hungry you are most likely to buy more food than you need, just because anything will look tasty when you are starving

7. Consider investment options adapted to your goals

Saving money is good. But making money out of your saved money is better. There are many ways you can leverage your savings to build your assets. A few ideas:

• Buy stocks
• Invest in real estate
• Use bank savings plans
• Buy crypto, NFTs (only invest what you can afford to loose completely)

When considering such options do not forget your goals (from point 1), as they will dictate what type of investment is well suited for your needs. If you need your money in 5 years you won’t apply the same investment strategy as if you need it in 20 years. Carefully conduct your own research to identify what is the best way to take the most out of your existing assets and build new ones.

Moreover, the power of investment is the compounding effect over time, so even if you start with small amounts, it is worth considering this option and start early. And when you will have more money to invest you will already be familiar with it and know what to do to take the most out of it.

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Last but not least, having healthier personal finances is a process that takes time, and it should become part of your lifestyle. This is why it shouldn’t be a punishment for you, but rather your way to enjoy your life while building an even better future.

This post is not a financial advice or recommendation and should not be considered as such. I just share my humble thoughts and experience on personal finance with the aim of simple and general information and education. Financial investment is risky, and you may loose up to the total of your money invested. Always do your own research before investing in any thing, and be careful of relying on unbiased and independent information.