7 Practical Ways To Master Personal Finances Like A Pro
Ready to rock your personal finances like you are a professional corporation? You can reach your goals and reduce your debt while enjoying a lifestyle you love, by following a few tips to help you get organized.
1. List Your Income and Expenses
Do you have an idea of how much you make, versus how much your cost of living expense is, monthly? The first rule to effective personal finance management is to get an accurate picture of how much is coming in, versus your expenses and obligations every month.
Make a spreadsheet and organize your bills by the dates they are payable. Take a total of all expenses (including transportation costs, groceries and other regular purchases) to arrive at your total living costs. Deduct those costs from your income, to arrive at your net income. That is the amount that you have left after meeting all obligations; this will tell you what your true ‘take home’ pay is, and the amount of capital you have left to work with.
2. Set a Budget for Discretionary Spending
The number of bills you pay monthly are typically static, with few exceptions. The amount of money you spend on other expenses that are not fixed, includes groceries, entertainment and general spending money. Is there a limit to how much you can spend every month if you have already paid your bills? That depends on the individual and their financial goals, including debt and student loan reduction, or saving for a down payment on a home. Pay yourself a set amount for discretionary spending, and stick to that amount, regardless of what is in your bank account, to get ahead.
3. Tackle Loans and Credit Card Debt
The biggest impact on net income is debt. Millennials and young adults can start life with the burden of a student loan, but the average American carries about $16,748 in credit card or revolving debt, according to 2016 data released by the U.S. Federal Reserve. That amounts to $779 billion dollars in credit card debt that hampers lifestyle and limits other financial goals.
Emergencies and other essentials can make it easy to incur debt, but it can take a long time to pay off, when compounding interest charges tack on additional expenses monthly. Tackling your loans or credit card debt is the best way to free up more net income for other goals and lifestyle needs. Start with the credit cards that have the lowest balance, and pay them off first. Financial planners share that starting small, and closing credit accounts that you do not need (think retail store cards) helps consumers feel encouraged, and increases the momentum, helping you get debt free faster.
4. Reduce Your Cost of Living
The choices we make about everything from where we live, to the size of the house or apartment we live in, the car we drive and our commute to work; they all add up to a cost of living that can be improved strategically. Increase your cash flow by paring down on things that matter less to you than other financial goals. Burning too much gas driving to work in an SUV? The downside to a more fuel economical vehicle. Renting a house that has more room than you need? Consider having a roommate split costs, or downsizing to something more affordable that makes sense.
Think about where you buy food, the types of entertainment you prefer and where you may be spending more than you need to. Small changes including packing your lunch for work (instead of buying lunch every day) add up to big savings and noticeable changes in your budget.
5. Create a Savings Account
Want to hear some scary financial statistics? The average working age American has poor savings habits that make them vulnerable to a personal finance crisis, if they become sick or lose their job.
One survey conducted by GoBankingRates revealed:
- 50% of U.S. families have no retirement savings.
- 69% of Americans have less than $1,000 in a savings account.
- 1/3 of Americans have no emergency cash savings.
When an unforeseen financial expense occurs, Americans are relying on credit cards and other short-term lending options (including payday advance loans) to cope. Given the interest rates on casual lending services, it is difficult to get ahead, contributing to growing personal loan and credit card debt.
Financial experts recommend that individuals should have a minimum of three months of living expenses saved in a bank account. Find an amount that you won’t miss (or think about) and start small by consistently adding to a savings account monthly.
6. Explore Supplementary Income Opportunities
Sometimes there is simply not enough room in your budget to make progress on some of your financial goals. Are there opportunities to earn a little extra money from home, using a side-gig to supplement your income? Working two jobs can be a great way to get ahead.
If you are a creative, IT professional, writer or administrative whiz-kid, explore freelance opportunities on sites like Upwork or Freelancer. It’s free to join and browse thousands of projects and long term contract opportunities that can help you earn extra (evenings and weekends) to help expedite debt repayment, or increased savings. Some people become exceptional freelancers and can create full-time work from home opportunities, by subcontracting their talents online.
7. Monitor Your Bank Account
Get your bank account on your mobile phone and sign up for alerts. Stay aware of all payments coming out of your personal checking account, and report any abnormal withdraws to your home branch. It’s not uncommon for debt cards to be hacked, and for fraudulent payments to be taken from your account. Review at least once a week to make sure that payments are coming out on time (to protect your credit rating) and report suspicious activity to your bank.
Run your personal finances like you are a business. Set a budget, keep track of expenses, and keep looking for ways to live below your means, to get ahead.
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