4 Ways to Manage Your Finances
No matter your age, personal finances are always a work in progress. Whether you are frugal or barely making it living paycheck to paycheck because of your spending habits, you can likely benefit from money management tips for the long-term. To ensure that you are in the best financial position at every stage in your life, start with these four tips:
Create & Use a Budget
Before you can effectively implement savings or investing tactics, you need to have a clear view of where you stand financially—from how much income you actually bring in, to how much you spend on necessities and non-essential purchases.
To create a budget, you need to:
- Calculate all of your income. (This can include your main job, additional side gigs, etc.)
- Add up all of your fixed expenses. (Rent, groceries, utilities, etc.)
- Subtract fixed expenses from your income.
This will show you how much leftover money you have each month. You then need to decide how much you will save and how much will be available for discretionary spending (meals out, entertainment, subscription services, and other unnecessary expenses).
While creating a budget is a good step in the right direction, actually using it to guide your financial decisions is essential.
Build Your Savings & Plan for Retirement
Building your savings isn’t just something your grandparents harp on you about, it truly is important to preserving your livelihood as you age. From meeting the demands of inflation to being able to survive during retirement, actively saving for as long as possible will have a lasting impact on your life.
In addition to simply putting away cash in a savings account, there are other ways you can also build your long-term savings.
There are a variety of ways you can start investing, including:
- Your company’s 401(k) program
- Mutual funds
- Real estate
It can be intimidating to venture into the world of investing, but it’s often one of the best ways to build passive income to bolster your savings. Using an investment calculator can make the process simpler, by helping you understand how your investment can grow over a set amount of time.
Set Financial Goals
It can be hard to see the benefits of better financial management if you aren’t working toward anything. Setting goals is key to sticking to your budget—this can include something as simple as saving $50 of every paycheck to a detailed financial plan for buying a house in two years.
When setting your financial goals, you want to think about what’s most important to you in the long run—for many of us it’s financial security. However, there may be smaller, short-term goals along the way to reaching your overall objective.
In order to achieve the goals you’ve set, it’s important to be realistic. If you are barely making ends meet with your current income, it’s not plausible to generate a huge savings right now, but you can start working towards your end goal by putting away a small amount that’s proportionate to your income and increasing that amount as you move up the pay scale.
Save for Big Purchases & Limit Debt
Credit cards are a great way to build your credit score and can come in handy for emergencies, but they are also accompanied with a lot of financial risk—from racking up a large amount of debt that you can’t seem to pay off to accidentally missing payments that lead to a decrease in your credit score. That’s why it’s important to limit the amount of debt you accumulate whenever possible.
Whether it’s buying a car, couch, or the latest gadgets, it can be tempting to put big purchases on your credit card, particularly for those with a high limit. However, these purchases can add up quickly, especially when you consider the interest you can rack up if you don’t pay off the balance as soon as possible.
Instead of simply putting expenses on your card, put a savings plan in place to make sure you can afford to pay for what you need up-front. If you cannot reasonably save up in the amount of time that you have before you need to make the purchase, try to at least save as much as you can, and put that payment toward the credit card. That way, only a portion of the expenses is debt.
In addition to limiting how much debt you accumulate, do some research before you sign up for a credit card. There are credit card comparison tools that you can use to see the pros and cons of each, including interest rates, rewards, and annual fees.
With these money management tips, you will be on your way to making better financial decisions and setting yourself up for a more secure future.