Everyone's finances are different and there are many different things that you can do to improve your situation.
There's more to it than simply spending less than you earn, although that's one of the most important steps.
Your own personal balance sheet is just as important, if not more important, for your long-term financial success. That's why ticking off the below things could be a really good idea:
Invest in yourself
How much you earn is one of the biggest factors that will decide your financial life. Over two decades, if you earn $50,000 a year you'll earn $1 million pre-tax. If you earn $100,000 a year over those two decades you'll earn $2 million. That's a huge difference!
By doing the right qualifications or courses you can add thousands to your annual earnings, which is a great return on your investment in education.
You could say the same sort of thing about the having the right tools. Improving your productivity is one of the best ways to generate more personal earnings. If you use a computer in an office one idea could be getting a second computer screen. Perhaps it's investing in a Xero Limited (ASX: XRO) for your administration. Maybe it's better (power) tools.
Doing things to boost your earnings is one of the best things you can do for your finances.
Pay down debt
Albert Einstein was right that compound interest is an extremely powerful force, if we are to believe he said that famous quote. When interest is working against you it's a terrible thing.
Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) would love you to hold that debt as long as possible so they can earn interest. Debt can be useful for productive assets such as business assets, education or a mortgage, but not much else in my opinion.
Paying down debt is a good idea in my opinion, particularly with interest rates being so low – in a few years it's likely they will be higher.
Build an emergency fund
The worst time to sell shares is in a recession. The time when you need money most is in an emergency. You never know when that emergency is going to hit. What would happen if the main breadwinner in the household lost their job? What if your car was written off in an accident?
If the prospect of the above situations is terrifying then it sounds like you should build up an emergency fund to cover those potential situations as soon as possible.
I think having at least $1,000 set aside is imperative for everyone. Younger adults could aim to have enough cash to replace a written-off car with another reasonably safe second hand car. Maybe that's somewhere between $4,000 to $10,000.
The household breadwinner should have at least three months of living expenses saved up – it could take a while to find a new job, maybe up to six months. My household currently has three months of living expenses saved in a high interest savings account and it's steadily growing to six months of living expenses.
Foolish takeaway
I believe doing the above three things are great ideas to improve your finances and it can apply to almost all situations. Being on top of your money can let you sleep better at night whilst giving you more confidence.
