Managing personal finances is essential to your financial health, but it is an intimidating task for many people. The following best practices are simple and effective ways to get started.
Take and Keep Stock of Your Current Finances
Burying your head in the sand is not conducive to financial health. You have to know where you are to understand how to get where you want to go. It’s that simple.
Gather all of your bills, debts, receipts, bank statements, and even any handwritten IOUs to friends or family. Also, pull out any information you have regarding retirement or general savings.
Take a good look at your current financial situation. How much do you make? How much do you have to pay out each month? What’s your credit score look like? How much do you have put away for a rainy day? Are you where you want to be? It’s vital that you take stock now and set regular check-in dates to keep up with how you are doing.
To put your money in the right places, you need to determine what those places are. This requires setting financial goals. Where do you want to be in six months? A year? Five years? Ten to twenty years? How do you want to live in retirement? Do you want to buy a house or send your kids to college?
Wherever you want to go and whatever you want to do, you need to write it down. Then, break those big goals down into teeny tiny steps that you can add into the next step.
Create a Budget…And Stick to It
“Budget” is a scary word for many people, but it’s not really a scary thing. A budget is quite simply a plan for your money. You decide where your money needs to go each month and year, you write it down — or put it in an app — and you follow that plan.
Making a budget and following it means that your bills get paid on time (Goodbye, Late Fees!), and you can start to live the life you want. In the interest of full disclosure, a budget itself is not a magical solution. The magic happens when you put in the time to plan and the work to make the plan become a reality.
Saving has got to be a part of your financial strategy. For starters, it’s imperative to have an emergency fund. Life is full of surprises, and being caught off guard can cost you.
For example, you don’t want to find yourself financing legal fees for a surprise court case or a tire because you are stuck on the side of the road. Those things can cost you more than necessary due to interest.
Start by building an emergency fund. Aim for three to six months worth of living expenses. Then, start working toward saving for retirement as well as goals, such as a down payment for a house or a vacation.
Always Compare Rates
Paying everything easily out of pocket is the ultimate goal, but it’s not feasible for everyone. Actually, it’s not possible for most. Thank goodness for financing, right?
The problem is that financing anything can cost you a great deal in interest, and that — of course — works against most financial goals. So, it’s important that you be careful with any financing options.
The best way to do this is by comparing interest rates for any loans you take out. Don’t just go with the first option. Take some time to shop around.
While doing so, don’t overlook online lenders. It’s not odd to find online auto financing, personal loans, mortgages, and more with more competitive interest. Some also have less stringent requirements. By shopping around, you can find one that suits your needs and financial situation without breaking your bank account.
Financial management is important for everyone, regardless of how much your paychecks are. By making a budget and being wise in managing your money, you can reach your financial goals and enjoy a more financially stable life.
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