Taking control of your finances can help set you up for long-term success by creating a plan to pay off debt, including student loans, credit cards, and even your mortgage. Also, it’s critical to focus on building an emergency fund and working toward hitting bigger goals, like having enough money for retirement.
Regularly review and update your financial plan
An effective financial plan is not a one-time event, but an ongoing process that should be reviewed and updated regularly.
Your financial plan helps you understand your current financial situation and set goals for the future. It provides guidance on how to make financial decisions so you can achieve your desired financial outcomes.
You should check your plan at least once a month and aim to update any important information at least every three to six months. You should update your plan whenever significant life events take place, such as purchasing a new home, getting married, getting a new job or a salary increase, or having a baby.
Create a budget and stick to it
Formulating a budget is an essential economic move that can facilitate getting your money matters in order and following how much cash is exchanged into and out of your bank account each month. Although it may look like a considerable amount of work to establish a budget, there are many online aids and applications that can lend a hand. Plus, after you have one, most of the work is finished, and you can readjust it as your spending customs or earnings change.
After creating a budget, it is important to stick to it. Checking in regularly with budgeting goals will help to ensure that overspending does not occur. If shared expenses are an issue, make sure that both people involved have access to the budget and that both people are held accountable for their spending.
When making your budget, make sure to include your monthly income, your regular expenses, and how much you want to spend on non-essentials.
There is no one-size-fits-all answer to budgeting, but the most important thing is to find a system that works for you and your lifestyle. If you can save 20%, 30%, or even half of your monthly income for savings or investments, you will be in a good position for financial success.
Set financial goals that are meaningful
The first and arguably most important step to financial success is setting goals. You need goals to track progress and celebrate milestones. Make sure your goals are “S.M.A.R.T.”: specific, measurable, achievable, relevant, and time-bound.
Here are a few examples of SMART financial goals:
- Pay off $25,000 of debt in 7 months
- Make $10,000 from a rental property in one year
- Increase net worth by $30,000 this year
All of the examples given adhere to the S.M.A.R.T goal guidelines. This makes them easier to track and measure, as well as holding you accountable to set a deadline. Having specific and relevant goals is key to financial success, rather than having vague goals.
This is a financial habit that can be increased or decreased depending on your needs, and can be done at various points throughout your year. For example, you can create a goal of adding at least $100 to an investment account each week, or a goal that states you will invest at least $500 into your retirement savings each month.
You can have big or small financial goals, it doesn’t matter. What matters is starting the habit of setting goals as soon as you can so you can be successful!
It is important to set both short-term and long-term financial goals to stay motivated and work towards your financial future.
Build a good credit score
Establishing a good credit score is key to qualifying for the best financial products and getting the best terms, which can save you thousands of dollars in interest.
There are a few options available that can help improve your credit score without the use of a credit card. One such option is ‘Experian Boost™’. This is a free feature which allows you to link your positive payment history for monthly bills (such as utilities, phone and Netflix) to your credit score, thus potentially improving your FICO® score.
If you want to improve your credit score, the best way to do it is to get a credit card and use it regularly. Be careful not to spend more than you can afford, and make sure you pay the entire bill each month.
Set up an emergency fund
One of the best things you can do is set up an emergency fund to cover any unforeseen expenses that might come up, like medical bills or car repairs. The money in your emergency fund can stop you from taking out a loan or running up a balance on a credit card, which can save you money in interest charges.
If you are looking to set up an emergency fund, it might be a good idea to keep the money in a high interest savings account. This way, you will only be able to withdraw the money six times a month without penalty, which will help to reduce the temptation to spend the money on non-emergencies.
Most experts agree that it is sensible to have between three and six months of living expenses set aside in an emergency fund. Saving a smaller amount of money each week is perfectly fine. Even if you only save $20 per week, that adds up to $1,000 in a year. Having that extra $1,000 will help you get started and provide a cushion.
Find passive income to improve your income
If you want to build wealth and pay off debt, you need to find ways to make more money without having to work for it. This can be done through things like investment properties, stocks, or starting a small business. These can all give you residual income.
You only need to invest time and money in the beginning to get everything set up. After that, you can expect to make money from your investments for a short or long period of time.
To make this a financial habit, get creative. Investing a lot of money into something is not always necessary to get a return. You could rent a room out in your home or even rent out your car on the weekends! Figure out ways to make small changes in your life that can add up substantially — helping you build wealth faster than what you may earn from a standard paycheck.
Pay off credit cards in full
The myth that carrying a balance on your credit card is better than paying it off in full each month has never been relevant. To understand why, you need to know what factors impact your credit score.
According to Experian, your payment history is the most important factor when determining your credit score. Second most important is your credit utilization. Keeping your utilization low means you’re using less credit, which is better for your credit score.
If you’re struggling to pay off your credit card each month, try to keep your balance below 30% of your credit limit. So, if you have a $1,000 credit limit, you should keep your balance at $300 or below every month.
If you don’t pay off your credit card balance each month, you’ll end up owing more money in interest payments. This is because your credit card company will charge you compound interest, which is interest that builds on itself. If you don’t pay your credit card debt, it could damage your credit score.
Start saving for retirement
It is always beneficial to start saving for retirement as early as possible so that the money has more time to grow. Many employers offer retirement accounts, such as 401(k)s, that employees can contribute to with each paycheck.
It’s a good idea to contribute at least an amount to your 401(k) that equals your employer’s contribution match. So if your employer matches up to 6% of your contribution, you should contribute at least 6% to your 401(k).
There are many retirement savings options available, employer-sponsored accounts being just one of them. You can start saving for retirement even if you don’t have a full-time job by setting up a Roth IRA. This can be easily done by setting up recurring transfers from each paycheck so you never even miss the money.
Eating out all the time can get expensive, and it’s not always the healthiest option. Instead of grabbing take out every day, try bringing food from home. This will save you money and help you eat healthier.
If you often buy coffee or food on your way to work or during your lunch break, you might be wasting a lot of money each year.
It can be a pain to meal prep and it’s not always exciting to eat the same thing day after day. However, you can ease into this habit by only eating out for lunch a couple of times per week and packing the rest. You’ll be surprised at how much money you can save by packing your own food.
Now that many people are still working from home, it’s a good idea to focus on cooking at home more often, and avoiding takeout. It’s okay to treat yourself every once in a while, but ordering takeout all the time can be quite expensive.
Develop good money habits
There are things you can do throughout your lifetime to start building good financial habits. Check your account balances regularly and switch to a no-fee checking account to avoid monthly fees. Earn interest on your savings by putting them into a high-yield account. Be careful not to spend more than you have and rack up credit card debt with high interest rates.
An easy way to save money is to optimize the credit card you use and open a card that offers rewards based on your spending habits. Hundreds of cards are available that offer bonus rewards on groceries, gas, restaurants, travel, and more. You could also get a flat-rate cash-back card that earns you the same amount of rewards on every purchase, like the Citi® Double Cash Card (2% cash back: 1% on all eligible purchases and an additional 1% after you pay your credit card bill).
Talk openly about money with your friends
It’s a good idea to talk about money with your friends and family, so you can share new money management approaches and get better at money skills.
Working on your finances can help you get over your fears about money
The more you talk about money and financial management with friends or accountability partners, the more likely you are to feel confident about the progress you’re making to improve your financial future.
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