Manage Finances
Managing your finances can be a challenge. There are so many things to learn, and it's easy to feel overwhelmed by the process. Even if you're already familiar with basic budgeting and investing concepts, there's always room for improvement.
The good news is that there's no right way to manage your finances as everyone has a different overall goal and risk profile. You don't have to be perfect — just make sure it is appropriate for you and meets your goals. This guide might help you get started on the right foot by covering key financial concepts that everyone should understand.
Why Is Managing Your Finances So Important
Managing your finances is one of the most important things you can do to ensure your future financial success. Managing your money is a skill that takes time to develop, but it's worth it in the long run.
Here are some reasons why managing your money is so important:
1. Helps You Save Money
If you don't have any savings or extra money, you may not be able to afford an emergency expense like a car repair or doctor's bill. Managing your finances means planning for the future so that you could have some money available for unexpected expenses. You can even look at savings accounts with high interest rates as a way to save money.
2. Improves Your Credit Score
A good credit score can help you get approved for loans and leases, lower interest rates, and make it easier to rent apartments and find jobs. Less debt also improves your credit score, lenders might see this as less risk and could potentially improve for various mortgage programs.
3. Can Even Help You Find a Job
Some employers look at applicants' financial histories when making hiring decisions. If they see that someone has no savings or has very high debt relative to their income, they may choose someone else for a myriad of reasons.
4. Makes Retirement Planning Easier
Planning for the future means thinking about what will happen when you stop working full-time and how much income will be required to maintain your current lifestyle. It also includes thinking about how much money should be saved for emergencies and how much will be needed for retirement.
How to understand your financial standings
You may think you know where you stand, but how do you know? Do you have enough to retire when you want to? Is there anything else you should be doing? Here are four questions that can help answer those questions:
1. Am I Saving for Retirement?
It's important to have a savings account that you can use for emergencies and big purchases. But if you don't have one, start with a small amount and work from there.
Is My Credit Score Good?
Your credit score is based on your past credit activity that tells creditors how likely you are to repay loans and other debts on time. A high score can help lower loan interest rates or get you approved for new credit cards.
Am I Paying Off My Debts?
If you have debt, make sure to pay more than the minimum payment each month so you can get rid of it sooner rather than later (or at least reduce its impact on your budget).
Are My Investments Working for Me?
Investing in securities is an option for some to potentially grow your money over time. If you're not sure what investing means or how it works, then make sure to do your due diligence and be prudent before you start investing.
How to become financially savvy
You can become financially savvy by developing a good sense of self-control and understanding how to manage your money.
1. Developing a Good Sense of Self-Control
This is essential for becoming financially savvy. With this, you can make smart financial decisions that align with your goals and values. For example, if you want to save money for retirement but also want to spend it on something fun right now, you need to be able to resist the temptation and wait until later.
2. To Develop This Skill, Try Practicing Delayed Gratification
For example, if you want two things but can only afford one, then make a strategy on which one to buy and how to save enough to buy both. This may help build your patience and willpower could become second nature when making future decisions about spending money.
Understanding How Money Works
Learning about how money works is also important in developing financial savvy, it should give you an understanding of what factors affect its value and how much it will cost when making purchases (i.e., what products have high markups).
Create a budget
This is the best way to know where your money is going and what you have left over. You can use a spreadsheet or an app like Mint, or You Need a Budget to create a monthly budget that lets you see how much money you have coming in and going out each month.
Establish an emergency fund
If something unexpected happens and you need cash quickly, having an emergency fund will give you peace of mind — and help prevent you from turning to high-interest credit cards or payday loans to pay for unexpected expenses.
Pay off high-interest debt first
Paying off high-interest debt such as credit cards should be your top priority because the interest charges on these accounts can quickly eat up any savings you may have accumulated elsewhere in your life. You can even use a calculator for savings to see how much you can pay extra towards your mortgage, and what your potential savings could be.
How can I save for retirement?
The government wants people to save for retirement to keep social security afloat. Retirement savings plans include 401(k)s and IRAs. You may be able to get a tax break if you contribute money into these types of accounts each year.You may even be able to use 401k money to buy a house as a first time home purchase, a portion of it may even be tax free.