Managing your personal finances is a crucial life skill, unfortunately, it is one that is all too often neglected in formal education. Whether you already have a strong financial situation and are looking to improve on it, are trying to recover from a tough financial place or are just getting started on your own, below are the personal finance tips you need to know.
8 Personal Finance Tips You Need to Know
Don’t just skim this article and move on to the next one. Take these words to heart and put them to good use!
1) Prioritize Making Payments
If you have several different creditors, it can be easy to think that if you have a set amount of money to spend on your debts, it doesn’t matter how that is broken down. This is not true if it means sacrificing making a payment on time in order to, for example, send extra money to a higher-interest account.
A proven history of making payments on time is a key component in your credit score and, in turn, in building a strong financial base.
2) Pay Off Credit Cards First
If you’ve made all of your minimum payments and still have additional money available to spend on debt reduction, it’s usually best to focus on credit card debt first.
Your credit utilization, which is the percentage of available credit you are using, is a key factor in your credit score, and lowering credit debts is one of the best ways to raise your credit score as a result. Unless you have another account with severely higher interest rates, your credit debt should be a top priority on your pathway to improved personal finances
3) Set a Hard and Soft Budget
Budgeting is a crucial personal finance skill. However, there is more to it than just deciding how much money you can spend in a night.
- In addition to a hard budget that sets immutable limits in order to maintain your financial security, you should also…
- create a soft budget, which sets more restrictive goals (within the confines of the hard budget).
You have the ability to violate this soft budget but should only do so with good reason. This lower budget level can help you to increase saving, while the flexible nature means you can still splurge on occasion for opportunities you truly value.
One of the best ways to begin building your savings account is set up an automated transfer that puts money into your savings from every paycheck. Because the money comes out automatically it’s easy to stay disciplined. It is easy to look at the savings deposits as another automated bill payment, with the happy side effect that the beneficiary of the bill is your own savings.
5) Don’t Neglect a Retirement Plan
When focusing on your financial needs today it can be easy to neglect your needs for tomorrow. Creating a retirement portfolio isn’t just a necessary consideration to set yourself up for the future. And, if you’re at a company that provides retirement matching it’s a near-necessity to be making your maximum matched contribution every paycheck. Employer matching is free money for your retirement, so don’t let it go to waste.
6) Pay Above Your Minimums If You Can
Behaving responsibly with your credit is an essential part of managing your personal finances. A common trap than many people fall into is thinking that paying their minimums is sufficient.
While we have discussed how making at least your minimum payments is crucial, it is still just the minimum you can do and that is rarely the same as doing enough.
Particularly if you have high-interest rates, paying the minimum can leave you on a treadmill where you pay for your credit debts several times over. By investing your extra money in paying off your debts you can generate big savings in the long run.
Of all the “personal finance tips you need to know”, this is the one that really builds motivation for people. Paying more than the minimums will pay off those small debts faster, which allows you to tackle the bigger debts way earlier than you thought possible!
7) Create a Rainy Day Fund
While it would be lovely if we could expect our successes to continue indefinitely, sometimes even the best-laid plans can veer off course as a result of unforeseen circumstances.
By creating special savings equal to a few months of living expenses, you can ensure that you are prepared in the event of a worst-case scenario. Not only does this help you avoid catastrophe, it can also improve your everyday standard of living as well. You can be more relaxed knowing that your financial interests are protected.
8) Develop a Passive Income Stream
The best way to provide for yourself now and into the future is to identify passive income opportunities. Financial experts like Donald Gayhardt know that when you have investments that generate income for you without your oversight, that frees you up to keep living your normal life…but at a higher financial level. Passive income is also invaluable in retirement as it provides a continued source of income even when you’ve stopped working full-time.
Finance Tips You Need to Know – In Conclusion
Working on your personal finances can feel overwhelming and like a lot of work, but it’s worth it. The peace of mind that comes from being financially secure has a positive effect on every aspect of your life. If you’ve put off working on your personal finances, or just want to shake things up, try these tips and get started building your stronger financial future.
Are you ready to improve your financial status? It IS possible and the best time is now!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.