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Five Personal Finance Tips

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Longtime Investor and an advocate for having personal savings to have financial freedom.

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It has always been important to have a solid financial plan, especially during times of economic uncertainty. In this list, here are five financial tips that I use on a daily basis that have worked for me and I hope you find value in it as well.

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1. Always Have a Savings Cushion

We hear quite frequently that sitting on cash is a mistake because of the "silent tax", or otherwise known as inflation eating away at it year after year. While this is true, and it is not the best investment to hold a huge portion of cash sitting in a savings account with a low interest rate, it is essential to have at least a few months of savings on hand to protect yourself in case of an emergency. Without having some savings on hand, you would be walking on a thin line where any event that could happen may place you in a tough position. In the event of a job loss, or an emergency, or a sudden expense you cannot avoid, you need to have a few months worth of savings built up to carry you through.

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2. Pay Yourself First Before Other Expenses

What I mean by this is make sure you are taken care of first financially, whether it is investments, savings, or having cash on hand for a rainy day before everything else. If you do not pay yourself first, then you are creating a system where you are making everyone else surrounding you a little wealthier, but at the end of the day you are out of money, and nothing left for you. This is a perfect formula to restricting your financial freedom, because if you do not have your own finances in order first, it is hard to help everyone else around you in the long-term.

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3. If you Carry Debt, Pay the Smaller Debts off First Before the Larger Ones

I like to think of this as a snowball effect and a consolidation technique. Starting off small and compounding to a large payoff, and eliminating the small debt early on so you can focus on tackling the larger ones. By taking care of the smaller debts first, you are setting small, but achievable goals to paying off your debt without being overwhelmed with focusing on paying off the larger debts first, potentially hurting your morale. Working to consolidate as few debts as possible also helps to clear your mind and focus more.

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4. Diversify Your Money When Possible

Most people that have any investments most likely have just a 401k and nothing else. While it is a great resource to have, it puts you in a high risk situation because you are at the mercy of the stock market. It is especially tragic to hear about a couple investing into their 401k for 40+ years and when the time comes to draw off of it, the market crashes and they lose a huge amount of their investment. By diversifying in multiple investments, this better protects you from experiencing this sudden loss. In addition to a 401k, having a real estate fund, such as Fundrise, or a cryptocurrency investment, such as Coinbase, are all great ways to add some diversification to your assets that all generally have highs or lows at different times and bounce back in different ways. It creates a huge amount of peace of mind knowing that while one investment is dried up or hurting, others can be excelling at the same time.

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5. Cash is Still King, so Use it Whenever Possible

At the end of the day, cash is still the best form of payment whenever possible. Cash also helps you manage your money better, because it is physically on hand and this is what you have to work with. If you can only buy what you can afford in hand, you are more likely to make smarter purchases. By relying on a credit or debit card, most people do not pay close attention to where their money is going and they are more likely to make impulse purchases because they do not have the physical money in hand. Oftentimes I hear from people regarding their paychecks with direct deposit they do not check their stub or how much is deposited. Money that is out of sight is out of mind and is usually more costly. Granted, most people cannot totally cut off a credit card for some purchases, but even just cutting back a little can go a long way to saving money and keeping better track of your finances.

With these five tips in mind, I hope they can benefit you in some way. I practice each of these on a daily basis and find them to work.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

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