It’s assumed that we should know exactly how to handle our money as soon as we become adults. However, not everyone knows how to do this or grew up with good financial role models. If you’re feeling lost when it comes to your personal finances, here are five money management tips to help you get on track.
1. Maintain a budget
Spending less than what you earn is a lesson as old as time and a critical one that holds true no matter how much money you make. Many money management strategies come with the idea to maintain a budget to help you track your spending against what you bring in.
The easiest way to budget your money is to keep track of your spending and review it often. You can do this manually with a spreadsheet or by using a helpful budgeting app that automatically syncs with your bank accounts. Either way, review your purchases regularly and ensure they are not surpassing what you can afford.
2. Invest for the long-term
A large part of investing is about choosing the right assets like stock or real estate. For the long-term, you may want to listen to the old cliche and not put all your eggs in one basket. By that, we mean you may want to consider putting your money into a diversified portfolio that tracks different kinds of stock and bond markets. This may help protect some of your assets from unforeseen market downturns.
For even greater efficiency, you may want to invest using tax-advantaged retirement accounts like a 401(k) or a Roth IRA. In addition to your earnings, you’ll also reap the benefits of paying fewer taxes now and in the future.
3. Pay down your debts
Nothing derails your financial plans and stifles cash flow quite like debt. If you have more than one debt, you may want to consider adopting an effective paydown strategy such as the debt snowball method. This is where you put all your efforts into paying off the debt with the smallest balance first and then systematically rolling those payments into each larger debt.
If you’re having trouble getting rid of your high-interest debt, you may want to consider a debt consolidation loan. You can use this loan to pay off your current outstanding debts. In exchange, you’ll take on a new loan with a lower interest rate and better terms that may result in a more manageable payment.
4. Boost your credit score
Regardless of whether you need to borrow money or not, it’s always important to work on raising your credit score as high as it will go. Your credit score isn’t just the gateway to buying a home or getting a new credit card. It can also significantly affect what interest rate a lender offers you. You can maintain a higher credit score by practicing good financial habits like making on-time payments, not using too much of your available credit, and keeping new inquiries to a minimum.
5. Plan for emergencies
You never know when your car will need an expensive repair or if an unplanned medical bill will pop up. However, these things happen, so it’s always best to be prepared for when they do.
This is why financial experts recommend that everyone keep an emergency fund. An emergency fund is a sum worth of your living expenses set aside for urgent needs. Typically, an emergency fund may total anywhere from 3 to 6 months of your expenses. Having this money readily available will make you less likely to take out a loan and get into unnecessary debt.
The bottom line
Solid money management is all about sticking to the basics. By minding your budget, paying off your debts, and having an emergency fund, your financial situation may be in good shape. At the same time, building up your credit score and making sensible long-term investments can help ensure that you’ll also be on track for the future.
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