Learning how to control your spending is the first lesson that everyone should learn. Waiting until you have money in hand to spend on a new computer is preferable to buying it on credit. Credit cards convince us that we can cover debts at the end of the month, and they allow us to minimize the act of spending. Primarily utilizing cash in transactions is one way to control impulsive spending. It forces you to look at how much you are spending, allowing you to cut down and become more frugal.
Another critical skill that all financially stable individuals learn is budgeting. Budgeting allows you to see where all your money is going and whether your expenses are exceeding your income. Many banking apps now have functions that allow you to track spending and many finance experts would also recommend putting together a spreadsheet that tracks your financial accounts, investments, debts, recurring expenses, and savings or emergency funds.
Finally, controlling personal finances means setting financial goals and putting aside a portion of income for savings. A good rule of thumb is the 50/20/30 role in which you allocate 50% of your budget for needs, 20% for savings, and 30% for discretionary wants. Building savings allows you to create an emergency fund for tough times, pay off debts, and start saving for retirement. Try to create clear financial goals such as a specific credit card monthly payment so that you can stay motivated.
Personal Finance FAQs
How Do I Get My Debt Under Control?
Many struggle with reigning in credit card usage and paying off student and car loans. The first step to reducing debt is reducing your usage of credit cards. Prioritize your debts and start off paying the highest-interest debt first which saves money down the road. You should also develop a debt plan such as a worksheet that lists your creditors, due dates, interest rates, and monthly payments.
Should I Invest My Extra Cash or Pay Off Debt?
The answer to this question depends on much you might earn on other investments with money would pay on the debt. If you would earn less money on the investments than you would pay in debt, you should pay off the debt. Pay attention to interest rates and let a financial planner review potential investments to ensure that your investment will cover your debt.
How Much Money Do I Need to Retire?
This is one of the most commonly asked questions in personal finance and there is no generic answer. This number depends on your lifestyle, where you want to live, how long you expect to live, and other factors. Starting your retirement account as quickly as possible and talking regularly with your retirement advisor will help you find a number that reflects your specific needs.