Eight Key Tips To Manage Your Personal Finances
Managing our personal finances can often seem overwhelming. Many of us never received any sort of instruction in public school in how to handle money, negotiate a good mortgage rate, how a credit card works or why one type of bank account might be a better value then another type. Rather, we have had to struggle all these years to figure it all out on our own.
The good news? By following a few simple rules, you can find yourself in a much better financial position, avoid most debt difficulties, and become your very own personal finance expert.
Here are eight key rules of personal finance to help you tame money once and for all:
Rule 1: Salary is different from savings
Your net worth is more important than how much money you make. Many people do not realize this, but your financial situation depends on so much more than just your salary. Having a high salary does not automatically make you rich; having a low salary does not automatically make you poor. What matters, at the end of the day, is how you use your salary and how much of your income you can put aside in savings.
Rule 2: Saving is more important than investing
Pay yourself first. You have likely heard this saying before, but it is a critical one. Saving money is important. The best investment decision you can make is setting aside as much of your left-over income in the form of savings. It gives you a huge margin of safety in life, sort of like having a back-up parachute if the main one fails after jumping out of a plane. If you have saved your money, you will be able to cope much more efficiently with unexpected expenses like car repairs, a family crisis, or a job loss where you may not have a flow of income for a period of time. Having a savings safety net prevents you from going into debt when something unexpected occurs.
Rule 3: Avoid credit card debt like the plague
Carrying credit card debt is a fast way to negatively impact your net worth. Credit card interest rates are often incredibly high. If you are not able to pay off your card balance in full each month, you end up spending a lot of money (and taking a long time) to repay that debt. By the time you are done, you will have paid significantly more for your purchases and damaged your finances. Do not put more purchases on your credit card than you can afford to repay each month.
Rule 4: Live below your means, not within your means
The only way to get ahead financially is to stay behind your own earnings power. Create a budget and stick to it. Make sure to have a category in your budget for savings. And try to avoid spending every dollar you earn. By creating a budget and sticking to it, you will be able to live below your means, arrange to put some money aside each month for savings and avoid getting into any financial difficulty.
Rule 5: Credit itself is important
The biggest expenses during your lifetime will be interest costs to finance your mortgage, car loans, student loans, etc. Having a solid credit score can save you tens of thousands of dollars by helping you lower your borrowing costs. You can use credit cards but always pay off the balance in full each month. If have not reviewed your credit report regularly, you can request to have a copy mailed to you for free by contacting the various credit bureaus (or access it for free through your bank’s website or through Credit Karma or Borrowell on your cellphone). If you find any errors in your credit report, be sure to request that they be corrected immediately.
Rule 6: If you want to understand your priorities, look at where you spend money each month
You must fully understand your spending behavior if you ever wish to gain control of your financial life. The goal is to spend money on things that are important to you but to cut back wherever possible. To do this efficiently, track your spending over a two- or three-month period. This means you write down what you spend your money on and how much you are spending. Then, at the end of the third month do a review of your spending to see where your money is really going. There is a good chance you will be surprised as to where your money is being spent. To stash away some cash, try to pay yourself first by putting some money aside in a savings account, and then spend the rest where you need it (rent, food, transportation, utilities, etc.).
Rule 7: Automate everything
We live in the age of technology. cellphones, tablets, laptops, and the internet all make tracking and managing finances much easier than in days past. The best way to save more, avoid late fees, and streamline your money management is to automate as much of it as you possibly can. Most creditors as well as your bank will encourage you to set up automatic transactions. This way you will not have to worry about missing a bill (and paying interest and late fees if you do). Use the technology available to you to transfer extra cash into a savings account every time you get paid and track your investments and savings online.
Rule 8: Get the big purchases right
Some of the most expensive purchases in your life are your home and your vehicle. You need a home, and you likely need a vehicle, but that does not mean you have to spend as much as you can possibly afford (or more) on these items. You do not have to have the biggest house on the block or the fanciest (or newest) car. Do not make the same mistake so many people make and instead put your hard-earned money to work by buying a vehicle or a home that fits comfortably within your budget.
Rule 9 (Bonus!): Ask for help if you need it
If you feel you need help managing your debts and digging yourself out of debt once and for all, the professionals at Farber are here to help you. Please CLICK ON THE FREE CONSULTATION button, below, or give us a call today. We will sit down with you, review your financial situation in detail and give you a no-obligation recommendation on how best to control your money situation.