How to become a smart financial consumer

How to become a smart financial consumer

Are you making sound financial decisions?

Maybe! This is the situation that most Canadians find themselves in after an impulse buying spree.

Making informed financial decisions is an integral part of wealth creation.

Whether you want to pay off your debts, save for retirement, or save for a family vacation, setting achievable financial goals can help you become a smart financial consumer.

The ability to set and implement smart financial goals is what sets apart successful people from people who struggle financially. Successful people have solid financial habits that help them preserve their wealth while creating additional wealth.

Who is a Smart Financial Consumer?

A smart financial consumer is a consumer who makes sound financial decisions relating to their spending and saving habits. The process starts by creating a budget before spending money on unnecessary purchases or expenses. They must also evaluate their financial decisions to determine if an expenditure is necessary and if there are better alternatives.

For example, before taking a mortgage to buy a house, a consumer must first assess their ability to make mortgage repayments when they fall due as well as ensuring that homeownership costs such as insurance, repair costs, lawn care, utility costs, etc. fit within their budget.

7 Ways on How to Become a Smart Financial Consumer

If you want to be smart with your money, there are certain actions you can take to help you save more, spend less, and create additional income. Here are the smartest actions you can take to properly manage your finances:

Set financial goals

The first step to becoming a smart financial consumer is to figure out your financial goals. Do you want to buy a home or start a new business? The ultimate financial goals that you want to achieve should be specific, clear, and non-ambiguous. You should write down your financial goals, and create a clear plan on how each of these goals is going to be achieved.

For example, if your goal is to “Save $1 million”, you should detail how and when you will achieve this goal. You can start by paying off your current debts so that you have a big portion of your income going into your savings account. If you are not sure how much you need to save for your target goal, you should research or ask around to get an estimate of how much you will need.

Create a budget

If your expenses exceed your income, your finances are headed to a big crash. You need to have a sound budget to guide your spending habits. When creating a budget, you should first figure out your monthly income. If you do not have a fixed employment income, you should examine your bank statement to determine your average income (based on your deposits) for the last two to five months.

Next, track your spending by reviewing your credit card transactions or receipts from the gas station, grocery store, or coffee shop. You should figure out your spending every week or month for a period of two to three months to get a clear picture of how much you spend on average. Once you have an estimate for the monthly income and expense, create a budget and follow it. Gradually, you will need to adjust the budget items to fine-tune items that are above or below the initial estimates.

Be responsible with debt

Are you comfortable with your debts?

Taking too many debts can keep you awake all night. They will damage your credit scores and deplete the little finances remaining for emergencies and other important needs. On the other hand, being responsible with your debts will help you meet your short-term and long-term financial goals.

If you are struggling with your debts, you should start paying debts with the highest interest. Short-term debts such as credit card loans mature quickly, and they should be paid as they fall due. When taking debts, ensure that you hold good debts that help you build your wealth by investing in a business or making capital investments.

Save for large purchases/expenses

If you are planning to spend on a high-value purchase or expense such as buying a car or home, vacation, roofing installation, or a donation, start saving for them in advance. You can have several saving accounts for each financial goal, and start saving several months or years ahead. This will help you pay for the purchase in cash, instead of going back into debts or piling up more debts onto your existing loans.

Automate your finances

In the age of technology, there are dozens of tools that you can use to automate your finances. Create a list of all bills and payments due every month, and create a system that automatically pays these bills on time.

The human mind is bound to forget paying certain bills, and you may end up getting penalized for delaying or forgetting to make payments that could otherwise be automated. Automating your finances will help eliminate any temptations to spend outside your budget. You will also have more time to perform other duties.

Create an extra income stream

In the current age, there are endless opportunities to create a second income without quitting your job. For example, you can start a business from your garage, get a second job, become a consultant, start selling products on Amazon and eBay, start a freelance business, etc. Creating multiple income streams can help you pay your debts quickly, and create surplus income for investment or retirement saving.

Online technologies and platforms give you plenty of ways to produce an income through social media channels, sites like Shopify or Etsy, or through your own resources via online ads. Here is a small sampling of the ways you can make money in 2021!

Read financial books

One thing that rich people have in common is that they always read. Knowledge has no limits, and you have to continually learn and read financial books and magazines to add new knowledge. Keep track of the best-selling financial books or the latest releases from your favorite authors.

Frequently asked questions about how to become a smart financial consumer

How can I improve my financial success?

The best way to improve your financial success is to set clear financial goals that you want to accomplish. These goals should be well articulated, with a well laid out plan on how each goal is going to be achieved.

Who is a smart financial consumer?

Being a smart financial consumer is more than just accumulating more money. It is about making sound financial decisions about your savings and spending habits and justifying each line of your budget.

How can I pay debts quickly?

Start by paying all the loans with the highest interest rate and with a short maturity period. Once short-term debts have been paid, you should increase your mortgage loan payments by splitting the monthly payments into weekly or bi-weekly payments.

How can I earn more money?

You can earn more money to spend and save by creating additional sources of income. You can get a second job, have a garage sale, become a fitness coach, sell a service, sell items on Amazon and eBay, sell photos online, etc.

How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

We are sorry that this post was not useful for you!

Let us improve this post!

Tell us how we can improve this post?

Josiah Mwangi

Josiah Mwangi is a freelance writer specializing in finance, business and real estate. His work has been featured on the Huffington Post, Finance Blog Zone, and other top publications