Managing your money may not be one of your top priorities, especially when you spot the latest must-have gadget or your friends are bugging you to hang out with them on your days off. As important as handling your personal finances wisely is, spending money will always be tempting.
A lack of financial knowledge can cause you to live paycheck by paycheck, rack up credit card debt, and threaten your retirement. Fortunately, there are several easy ways you can manage your money successfully, without giving up all of life’s pleasures.
Follow these 6 personal finance tips to become more organized with your money.
1. Personal Finance: Budgeting
It might be tempting to pay your bills by simply winging it, but never underestimate the power of knowing exactly what’s coming in so you can budget accordingly. Start getting familiar with your finances by reviewing your last 3 bank statements. Pay attention to both your average monthly income and your average monthly spending.
Then, make a list of all the bills you need to pay each month, prioritizing the most important ones like your rent, utilities, groceries, etc. Create a second list of bills that don’t fall under your basic living expense, such as streaming services or eating out. If you don’t have any money left over after you’ve added up the items on your list, it’s a good idea to cut back on things you don’t really need.
2. Create an Emergency Fund
You never know when something unexpected will come up. Be prepared for whatever life throws your way by creating an emergency fund. Set money aside every month to cover costly expenses like your car breaking down, a trip to the emergency room, or a change in employment.
A good rule of thumb is to save for at least 3 – 6 months of living expenses and set that money aside in a separate savings account than the one you already use. Choose an account that accrues interest but allows you to access the money any time you need it.
3. Manage Your Credit Wisely
Keep your credit card utilization below 30% to avoid high interest rates and give your credit a boost. Maintaining a high credit score is very important since it’s used for a variety of financial matters like getting approved for a mortgage and car.
Credit cards have high interest rates – sometimes as high as 16% or even more. That means that even a small charge that you carry over month to month can quickly turn into a significant expense. After setting your budget and building savings, make extra payments on your credit cards if possible to reduce your debt. Your wallet will thank you later!
4. Save Early for Retirement
When you’re young, retirement might seem like years away. But even if your employee offers a retirement plan, saving more now can make a world of difference when you’re ready to retire. The main reason to save early for retirement is that you’ll earn compound interest on even small contributions that will grow over time. Start saving now, and you won’t feel like you’re racing to catch up later.
5. Never Miss a Due Date
Missing payments or paying your bills late can rack up a lot of penalties and fees. Since your payment history accounts for 35% of your overall credit score, failing to make payments on time could have a negative impact that makes it harder to apply for loans, too. To make sure that you never miss a payment, set up a reminder on your phone or enroll in automatic withdrawals through your bank account.
6. Check Your Credit Often
Keep a close eye on what’s going on with your credit report from the 3 main agencies – Experian, Equifax, and TransUnion. Go to AnnualCreditReport.com to check your credit report weekly. Scan the report for fraudulent activity or errors. If something doesn’t seem right, contact the credit reporting agency or file a dispute with the account provider.
Checking your credit report regularly can help you detect and quickly address issues. If you plan on getting a lease, mortgage, or vehicle in the future, you need to make sure that your credit report is accurate.
It might seem intimidating to manage your personal finances, but the truth is that handling your money wisely will set you up for lifelong success. Follow the above tips to change the way you manage your personal finances for the better.
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