Personal financial management is a subject that is not taught in many schools, but is something that nearly everyone has to deal with in their lives later on. Managing your finances, keeping your expenses in order, and planning (and sticking to!) a budget can be tough, especially when things get busy. It would be nice if you could have one magic formula or one easy trick that made it so you never had to worry about money again. If you are tired of being stressed out about money all of the time, you need to get a hold on your personal finances.
Learning financial savvy can take a while, but the basics are fairly simple and never change. Here’s where to get started.
1. Start with goals
The first thing you should do is to write specific goals about what you want to do with your life and your money. Finances can affect many different areas of your life. Your goal to travel the world affects how you will plan your finances. Your goal to retire early is dependent on how well you handle your finances now. Home ownership, starting a family, moving or changing careers will all be affected by how you manage your finances. Once you have written down your goals you will need to prioritize them. This makes sure you are paying attention to the ones that are most important to you. You can also list them in the order you want to achieve them, but for a long-term goal like retirement, you should be working towards it while working on your other goals.
2. Stick to your budget
Your budget is one of the biggest tools that will help you succeed financially. It allows you to create a spending plan so you can focus your money in a way that will help you to reach your goals. Even after you are out of debt you need to have a budget. It is easy to spend more than you make, and if you stop tracking your spending you can go over and run up debt really quickly. A budget lets you decide how to spend your money. Without the plan, you may spend your money on things that are not important to you, but you want in the moment, and then wonder why you are never reaching the financial milestones you want to set. If you are married, you and your spouse need to work together on the budget. This will help you to achieve your goals together and prevent fights.
3. Take your credit cards out of your wallet.
Credit cards should be saved for emergency-only situations, but when they’re stashed in your wallet, they’re easy to whip out and use for everything from groceries to gas. Credit cards can quickly become the junk food of your financial diet, likening them to what you reach for in the pantry because you haven’t stocked any healthier options. When you’re tempted to overindulge, credit cards’ high-interest rates will rapidly eat away at any progress you’ve made and drag you into spiraling debt. Remove the junk in your wallet, so to speak, by replacing credit cards with the cash you’ve determined you can spend for the week based on your own budget.
4. Spend what you have, not what you hope to make.
You may think of yourself as a high earner, but if your money doesn’t back up that statement, you’re shooting yourself in the foot acting like you are. The first and greatest rule of spending money is this: Unless it’s an emergency, only spend money that you have, not money that you expect to make. This should keep you out of debt and planning well for the future.
5. Familiarize yourself with different investment options.
As we grow up, we realize that the financial world out there is so much more complicated than we envisioned as children. There are literally options to trade imaginary items; there are futures to bet on things that have not yet happened; there are sophisticated bundles of stock. The more you know about financial instruments and possibilities, the better off you’ll be when it comes to investing your money, even if that wisdom consists only of knowing when to back away.
6. Have good insurance coverage.
They say that smart people expect the unexpected, and have a plan for what they’ll do just in case. You never know when you’ll need a large sum of money during an emergency. Having good insurance coverage can really help tide you over through a crisis. Talk with your family about different kinds of insurance that you can purchase to help you in the event of an emergency.
7. Make your money make more money.
Want to know how the rich keep getting richer? It’s because money can grow while you sleep, provided you save some of it. Properly invested money earns more money over time. Don’t just sock all your cash away in a low-interest savings account. Invest in things that will earn you more money than you had before. Sometimes that’s an investment account, but sometimes it’s starting a business, buy some mutual funds or even getting an education to get a better paying job.
8. Start an emergency fund.
Saving is all about frittering away expendable income. Having expendable income means not having debt. Not having debt means being prepared for emergencies. Therefore, a rainy-day fund can really help you out when it comes to saving money. Think about it like this: your car breaks down and you suddenly have to pay extra payments. You didn’t plan on this happening, so you have to take out a loan. Credit is tightening up, so your interest rates might be pretty high. Pretty soon, you’re paying 6 or 7 percent interest on a loan, which cuts into your ability to save for the next half-year. If you had an emergency fund, you could have avoided bringing on the debt, and the associated interest rates, in the first place. Being prepared really pays.
9. Get out of debt
Your debt is a huge obstacle to reaching your financial goals. Set up a debt elimination plan that will snowball your payments. While making minimum payments, you focus extra money on one debt at a time and then move all the money you were paying on the first debt to the next debt. Once you are out of debt, you need to make a commitment to stay out of debt. Stop carrying your credit cards around with you, and save up an emergency fund to cover unexpected expenses so you do not need to turn to a credit card to cover them.