Let’s admit it, upon reaching adulthood, we are involuntarily thrown into the pits of minding our personal finances. It can be a daunting responsibility for which we need to be wise, practical and disciplined in managing our money. But we need not succumb to budget woes once we have established personal finance strategies that will let us enjoy monetary freedom.
We have seen older folks endure unfortunate financial distress—which is more than enough to start building your own safety net. Saving for the future while living in the moment is possible if you are responsible enough. It starts with having strategies to plan your personal finances. These key takeaways will help you maximize your budget flexibility, limit your spending habits, and generate more income.
First, let us understand what personal finance means before diving into the key strategies to keep.
What is Personal Finance?
Personal finance is the method of planning, managing and maintaining financial activities you engage in including your expenses, income, savings, and investments. It hovers over the scope of monitoring all these transactions in order to achieve your financial goals. Whether these goals are short-term or long-term, all will depend on your current financial status to properly identify the tactics you can practice in attaining those goals.
The key strategies to keep in mind
To fully deem yourself as a wise spender and saver, there are various strategies you can take to completely enjoy financial freedom. Beginner or not, you must learn some personal finance strategies to guide you along your financial dreams.
1. Set your financial goals.
The first step to defining your financial limits starts with knowing what your financial goals are. Whether long-term or short-term, it is smart to know the priorities you have so that you can limit yourself and be reminded of your objectives.
These goals highly impact the finances you are going to make so plan ahead and construct the steps you will take to achieve them. You can check out these tips on setting your financial goals to help you set them up.
2. Pay off and limit debts.
Debts are not necessarily bad. Sometimes they’re unavoidable, but you should be very careful so that you’re not financially burdened by your debts in the long run.
Practice paying them off as soon as possible to avoid interest increments and try to stay away from them in the future. Do not spend more than what you earn. Debt should only be considered as a last resort. If you’re in need of fast cash, you can consider getting a secured loan to pay off your debts. This could include getting a car title loan, a home equity loan, or a pawnshop loan. There’s always a solution to pay off your debts, sometimes all that’s needed is thinking outside the box.
3. Set a budget on everything.
Your budget defines how your savings are going to turn out. Be smart on watching your spending habits and start devising a partition method to wisely save up. You can try Elizabeth Warren’s 50/30/20 rule to break down your expenses and savings.
50% of your income should go straight to your needs such as house/rent, food, transportation, and other bills. The 30% will make up for the wants you have which include shopping, travel, entertainment, and other leisure activities. Lastly, the remaining 20% shall be your savings and funds for future purposes.
4. Use credit cards with care.
Credit cards are your best friend when you need to purchase something at times you haven’t got the money yet. But they can be a culprit to humongous debts caused by impulse buying. It is a crucial responsibility to own one—you should have the extra discipline to manage it.
Avoid maxing out your credit card and always pay your dues on time to prevent spending more. Leave your credit cards at home when going out for safety precautions if you think you cannot resist spending.
5. Know what the good and bad debts are.
Not all debts are bad—in the sense that it will just burden you with high-interest rates while having no tax benefits. There are good debts that can get you a mortgage with low-interest rates and carry tax benefits.
See the difference? When you know the difference between the two, you can get away with being flexible at your financial choices. Keep your credit card transactions at bay and try to avoid using it for senseless activities.
6. Maintain good credit score.
Your spending activities using your credit cards are beneficial to building a good credit score so use it with extra care. Always pay on time and never miss any dues to help your credit score go up. You can use this score on garnering lease, mortgage, and other loans so you’ll need solid proof of your ability to repay.
In obtaining approval for loans, you need to have at least a credit score of 670-739 which is considered good. Less than 580 is poor, whereas 580-669 is fair. 740-799 is considered very good and a credit score of 800+ is exceptional.
7. Set up a retirement plan.
It is smart to save up for the future when you decide to retire. Many are worried about not having enough funds when the time comes to quitting the realms of the labor force. There are a lot of uncertainties you need to prepare for as you grow and it’s better to start early than be sorry.
8. Devise various platforms to generate income.
If you are really passionate about saving up as much as you can, you should consider creating ways to generate more income. A full-time job may not suffice your needs and the goals you want to achieve.
There are lots of startup facets you can explore—you can start with assessing the skill set you have in order to identify how you can make more money out of it. Based on your abilities, you can maximize the possibilities of earning more. You can start investing in stocks or building a side business while working full-time.
9. Be wise on your insurance.
Having insurance is one of the most clever decisions you can make; it will protect you against financial risks and help you get back once the unfortunate circumstances happened. However, you need to be mindful on what plans to get—if they match your financial goals or they offer the right amount of coverage
10. Maintain an emergency fund.
An essential to planning your finances is putting aside an emergency fund in case any unforeseen events occur. Though, no one knows what the future holds, it is your responsibility to save an emergency fund you can count on. It needs time to build up the amount that can cover a couple of months’ worth of expenses.
In order to effectively save up for this kind of fund, you can use a savings account that’s specifically created for your emergency fund.
11. Avoid impulse purchases.
These transactions are to blame for your disrupted budget plan. No matter how little you spend on something, when you add up multiple transactions, they will total to an amount that could have gone to your savings. It is practical to just stay away from making these activities.
Resisting the urge to buy discounted items is such a hard task, but you will thank yourself for it later on.
12. Treat yourself, too!
What is all the hard work for if you are not going to enjoy the fruits of your discipline? Every once in a while, you should treat yourself to something you really like—travel vacations, dine-out, or movies. Not only this lets you breathe for a while, but it also lets you take pleasure on how far you’ve come.
These key strategies on handling your personal finances are highly beneficial to establishing your financial security. Whether you are totally new to saving up or you are just looking for additional techniques you can incorporate to your financial habits, keeping these in hand will help you a step closer to enjoying financial freedom.
You just have to remember that all it takes is the discipline to fully attain the goals you have. Add these personal finance strategies into the mix and you’re all set to be the responsible individual that everyone should be.
13. Use personal finance apps to manage your spending.
If you are having a hard time monitoring your financial transactions, several finance apps can help you keep track of them. Personal finance apps offer various ways to streamline your budget, consolidate all expenses, and automate transactions for you. This is one of the most recommended personal finance strategies by experts we asked in a separate article here.
If you aren’t familiar with any personal finance apps, here are some of the popular ones available in the app market now:
Mint currently tops the list of the most-loved personal finance apps. Its main features include automated updates, transaction categories, and real-time picture of your spending. You can set your budget here, and it will warn you once you start exceeding your limit. Lastly, it allows you to monitor your credit score.
This personal finance app helps you live within your budget. It is the best app to use if you want to stop living beyond your means. YNAB tells you when you are off track with your budget and provides you tips on how you could manage finances differently.
If you want convenience, Wally could be your best choice yet. Instead of manually adding your expenses into the app, you can take a photo of your receipts to save the transaction details. You could even turn on your location to automatically add the necessary information, which saves you lots of time and effort.
Acorns is an excellent personal finance app to use if you want to maximize investment opportunities. You have to connect your card to the app. For every purchase made, the app will automatically round off the amount to the next highest dollar. Then, the difference will automatically add to your investment that you set up. Imagine how much you could invest in a year without being charged more than a dollar per transaction.
This free personal finance app analyzes your spending behavior and provides you recommendations for better financial management. It is also acclaimed for its aim to cut off unnecessary subscriptions that add up to your monthly bills. This way, you have fewer expenses to cover every month.
Personal Capital is an investment tool that also allows you to budget and track your spending. Here, you can connect and monitor your savings, credit card accounts, checking accounts, loans, mortgages, IRAs, and 401(k)s. With all these consolidated in one place, you can easily view a breakdown of your net worth and financial portfolio.
14. Strategize how you’ll pay off your mortgages.
Mortgages are usually a long-term commitment that highly impact your financial position. You either pay it monthly, or you pay it off at one go. The latter is undeniably impractical; that’s why you need to strategize how you will pay it off without sabotaging your finances.
Here are some standard practices you can do to pay off mortgages responsibly:
Rent out extra space at home.
Whether it’s a room, house, or a parking space, you can have them rented if you don’t necessarily use them. This is one way to earn more income that you could use for paying the mortgage.
Make time for a side hustle.
Having another income stream other than your main job is crucial when you have more bills to pay. You can even dedicate this side hustle to solely paying off your mortgage.
Save all extras into your mortgage payment.
Whenever you receive bonuses, tax refunds, or any ‘extra’ fund, you can send them straight to your mortgage budget. This way, these extras are not going to unnecessary purchases brought about by impulse.
Try refinancing your mortgage.
When you had your house, chances are, you had it at a higher interest rate. After quite some time, when your credit score improved, your income increased, and when interest rates dropped, you can try refinancing your mortgage.
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