Whether your financial situation is fairly straightforward or more complex, the basics of success in managing your money effectively are one in the same. You need to avoid most types of debt and pay off any debt that you do have, live within your means and save and invest a portion of your income. Follow the steps below as a blueprint for financial success.
Handle Your Debt
You should try to avoid having any debt, with the exception of your mortgage. If you are like most people, you might have student loan debt, credit card debt and an auto loan. If you refinance student loans, you could get a lower interest rate. This could also help you save on your monthly expenses. It is often possible to transfer a credit card balance onto a card that offers low interest or zero interest for a certain period of time, such as six or twelve months. This can be a good way to pay off your balance quickly. Finally, when it comes to buying a car, you should consider getting a used car that you will drive for a long time. New cars costs continue to rise, not to mention lose value as soon as you drive off the lot.
Budgeting
Budgeting is a challenge for many people. Either they are unrealistic about their spending or they simply find it tedious. Fortunately, you don’t have to write down every expenditure and enter it into a spreadsheet if that approach doesn’t appeal to you. There are many different apps that can track your spending and help you create a budget. The best way to make an accurate budget is to track your spending over several months. That way, if one month is atypical, you’ll see a more regular pattern for the other months. It’s also important to include occasional expenses, such as personal grooming products, as well as annual expenses, such as vacations or birthday presents. Try out your budget for a few weeks or months and make adjustments as needed.
Saving and Investing
You can think of your savings as being in three different categories. First, you need an emergency fund. This should cover a few months’ regular expenses for you and should be kept somewhere easily accessible, such as a savings account. An emergency fund helps ensure that a sudden car repair, an unexpected insurance co-payment or a layoff from work doesn’t spell disaster or mean you have to turn to your credit card.
Next, you should be contributing to a retirement fund. If you have one through work, you should be trying to max out your contributions. Finally, if your debts are under control and you are sticking to your budget, you can start looking at setting aside money for investments. How you want to invest will vary based on your goals, how involved you want to be in your investments and how much risk you are willing to take on. Don’t assume that you need thousands or even hundreds of dollars to start. You can begin with $100 or even less, and there are a variety of resources online to help you get started. Another option is to meet with a financial professional and make an investment plan.
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