Try these seven steps for succesfully managing your personal finances.
Getting on top of your economic situation can be as simple or as complicated as you want it to be. Some people are only concerned with keeping their budget balanced, whereas others are juggling multiple strings of debt on top of their regular expenses. But, most of us could benefit from a few basic pointers.
Big or small, take charge of your financial freedom in seven simple steps.
Create a budget
The first step to any successful financial plan is knowing how money is coming into – and leaving – your account.
You can’t develop a savings plan or debt repayment schedule without figuring out where you stand economically. There are a few ways to write a budget.
You can backtrack your expenses by going through previous bank statements, or you can start from scratch with a spreadsheet. There are also a variety of helpful apps on the market that you can sync with your bank account, so they take care of the legwork for you.
Understand your expenses
Once you realize where your money is going, it can be helpful to find out why. Many of us have unnecessary spending habits that we don’t even know about. Go through your budget and determine which expenses are crucial, important but flexible, or discretionary.
Once you have a better idea about which purchases can or cannot be avoided, you can decide where you can start saving money.
Build a debt-management plan
At the end of last year, Americans collectively had more than $13 trillion in debt. Credit card usage is at an all-time high, and education costs are driving more and more Americans to borrow money for college. Whether you just have a small credit card bill or a six-figure student loan balance, you can take steps toward a debt-free future.
If you are having trouble finding room in your budget for debt repayment, there are a few different ways to make your paycheck go further.
Adjust income accordingly
Some people might be able to siphon the money they need by limiting certain purchases. In some cases, individuals choose to take a second job or an extra line of credit to reconcile their debts.
Either way, it’s important to choose a solution that works best for your own personal situation. Once you know how you want to make up the deficit in your budget, use that adjustment to plan for future pay periods.
Every little bit counts, regardless of whether you’re saving for a rainy day or working towards eliminating your debt.
Start an emergency fund
Debt or not, you never know when you’ll face an emergency that could completely derail your financial stability.
Planning for unforeseen circumstances such as injuries, accidents, or employment layoffs is important for everyone.
When possible, you should have at least three months’ worth of expenses in your savings account. Even if you have a full schedule and a limited income, you should still prioritize your emergency savings fund.
Plan for retirement
Your future self will thank you if you start taking care of your retirement plan as soon as possible.
It might seem daunting to consider retirement, especially if you’re in the beginning of your career. But, even saving a small amount could make a huge difference in a few decades.
If your company matches retirement account deposits, that translates to free money once you’re able to make a withdrawal without facing a penalty.
You can also take matters into your own hands by opening a Roth IRA or high-interest savings account. Think about your retirement plans, and choose the option that’s best for your current situation and future goals.
Now that you’ve established your financial plan, it’s important to stay on track. None of this will help you if you don’t stick to your goals.
Maintaining a budget, either digitally or on paper, will help you keep yourself accountable for all of your purchases.
However you decide to keep track of your new budget, don’t underestimate your ability to manage your own financial future. These easy tips can help you transform your bank account and credit score in no time.