Chances are, you’ve spent a lot of time dreaming about your perfect life. What do you imagine? A five-bedroom ranch in the country? Jet-setting around the world with friends?
If you want to live the life of your dreams, you’ll need the finances to make it happen. Before you get too worried, that doesn’t necessarily mean you need a lot of money. It means you need to manage the money you have properly.
From paying off outstanding debt to reining in spending, there are many ways to meet your goals. Here are a few ways to improve your financial situation so that you can afford the lifestyle you want.
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Set Your Goals
There are probably specific intermediate financial objectives you’ll need to set to enjoy the lifestyle of your dreams. For example, your end goal might be to take yearly trips. That could entail setting a strict budget and using only what money you put onto your debit card so you better manage your spending throughout the year to afford those vacations.
If your goal is to afford your kid’s college education, you could open up high-yield savings or 529 accounts when they’re young. You’ll need to know what your life goals look like before you can prepare for them.
Remember that your personal finances are just that – personal. It might seem as though you should have everything your friends have. But don’t let what other people want to dictate your dreams. Make decisions based on what’s important to you.
Understand Your Finances
The next step is to understand the current state of your finances. To do that, spend some time looking at your monthly income and expenses. How much money do you make every month? How much money do you spend?
When calculating your monthly expenses, it’s a good idea to make a list to help keep everything organized. Start with your major bills, such as your mortgage or rent, utilities, and credit card payments. Then move on to other recurring payments like your gym membership and Apple music subscription. Don’t forget about frivolous spendings, like buying coffee at Starbucks or a new dress for your friend’s wedding.
Take a closer look at your monthly numbers. This may provide the wake-up call you need to meet your goals. If you don’t know how much money you have, how can you take steps toward your dreams? So spend some time looking over your finances. Then you can identify which habits might be holding you back from living your ideal life.
Create a Budget
Budgets get a bad rep, and that’s because there’s a lot of misconceptions about them. A budget is a tool to help you afford the lifestyle you want. It doesn’t need to be incredibly restrictive or keep you from enjoying your life.
The easiest way to create a budget is to categorize your fixed and variable expenses. Fixed expenses are your essential costs (rent, utilities, etc.). Variable expenses are the ones that change every month (eating out, entertainment, etc.). While you might not have a lot of wiggle room with your fixed expenses, you have flexibility with your variables.
The 50-30-20 budget is a good rule to follow. With this budget, 50% of your income goes to your essential expenses. The next 30% goes to your wants (i.e., variables), while 20% goes into your savings or debt repayment.
Creating a budget is a great start. Just make sure you stick to it. This may be easier said than done, but there are ways to hold yourself accountable. Put a spending limit on your debit card or use only cash. Either measure can help curb costly impulse purchases.
Pay Off Your Credit Card Each Month
If possible, don’t just pay the minimum balance on your credit card bill each month. Pay off the full balance.
Credit cards usually have a higher interest rate than other forms of borrowing such as student loans. This means you’ll accrue more interest if you don’t pay off the balance on your credit card. It’s better to pay it off month to month than to owe the bank more money.
Paying your credit card off on time each month will also help you build a credit history. Good credit history can lead to the life of your dreams. You’ll need it to get the loans for your ideal car or home.
Pay Off Other Debt
Credit card debt isn’t the only debt you should address. If any other is holding you back, you should pay it off, too.
There are different schools of thought when it comes to paying off debt. Some think it’s better to pay it off over time. That way, you won’t deplete your bank account to such an extent that you can’t deal with emergency expenses. Others say it’s better to pay off debt quickly so you won’t have to pay as much interest.
The New York Federal Reserve reports that the total U.S. consumer debt is over $14.5 trillion. Going into debt is sometimes unavoidable. Paying the money back is also unavoidable. The longer you wait, the more you’ll owe. The more you owe, the harder it’ll be to get into good financial standing.
As you can see, consumer debt is high, and almost one-third of American households struggle to pay it off. You might not have the financial wherewithal to make more than your minimum payments right now. If you do, though, consider making larger payments. It’s hard to afford your dream lifestyle while you’re still paying someone else.
From Budget to Bucket List
Achieving your lifestyle dreams will often come down to making good financial choices and making compromises. You might not be able to afford that cottage in the forest yet. But that doesn’t mean you have to take it off your bucket list.
Take a deep dive into your finances and set that budget. Look for ways to save, such as living with a roommate. The down payment on the house of your dreams might be right around the corner. By re-prioritizing and making a few changes, you’ll be able to achieve your lifestyle goals.