Poor money management can land you in a mound of debt that can take years to repay. Staying on top of your personal finances is essential to living a comfortable future where you don’t need to worry about living paycheck to paycheck, paying off massive loans, or living a frugal life because you can’t afford to do what you love.
To help you manage your personal finances, we created this how-to guide that can serve as a starting block for getting your money in order. From creating a budget to managing debt, we cover it all. Take a look below!
Create a budget
The key to managing your personal finances is creating a budget. Your budget will help you make smart financial decisions that won’t set you back. Additionally, budgeting will allow you to build up a robust emergency fund in the event an unexpected bill comes your way, whether a medical expense or a car repair.
To create a budget, you need to understand your expenses and income. Your expenses include anything you spend money on, such as rent, utilities, loans, insurance, groceries, leisure, and so forth. Your income, on the other hand, isn’t your salary, but how much you bring home each month after taxes, benefits, and retirement contributions are taken out of your check each pay period.
Once you have your expenses and income calculated, compare them. Are you spending more than you earn? If so, you may need to make some lifestyle changes to ensure you’re not living in the red. One budgeting tip is to follow the 50/30/20 budgeting plan. With this plan:
- 50 percent of your paycheck goes toward necessary expenses like rent, mortgage, food, utilities, loans, debt, etc.
- 30 percent goes toward your wants, such as hobbies, going out to dinner, and shopping
- 20 percent goes into your savings accounts and emergency fund
Once you have a budget in place and you stick to it, you’ll be able to save for major life purchases, such as a down payment on a home, a new car, and paying off student loans and other debts.
Consolidate your debt
No one wants to be in debt. Yet, roughly 80 percent of Americans are in it. From student loans to credit card debt and mortgages to medical bills, there are many circumstances that may have landed you in debt. However, there are plenty of ways you can get your debt under control.
A good starting point is by using a loan repayment calculator. A loan repayment calculator will allow you to see your remaining loan balance, the impact of different interest rates, how much interest you’ll end up paying over the course of your loans, and how long it will take to repay your loans. This will then help you create a budget to tackle your debt and pay them off sooner without accruing as much interest.
If you have multiple loans with various interest rates, you may want to consider consolidating your loans. This can be an option for personal loans, credit card debt, and payday loans, where you can combine them into one bill rather than multiple.
Cut out unnecessary expenses
There are so many things to do, places to see, and items to buy in this world, which makes it easy to swipe your card without thinking about the toll it’s taking on your finances. Are you visiting your local barista every morning for a $7 iced coffee? Or, do you have an expensive gym membership that you only visit a few times a month? And is it necessary to have monthly subscriptions to multiple streaming platforms like Netflix, Hulu, HBO, and Disney+?
Over time, all of these expenses can rack up and land you in financial trouble. As you look at your budget, place all of your expenses into categories, such as housing (rent, utilities, etc.), necessities (groceries, gas, etc.), health (insurance, prescriptions, etc.), and leisure (dining out, shopping, movies, etc.). Once everything’s categorized, take a look at your leisure activities, which can often be cut or reduced.
As you look through your expenses, ask yourself if you can switch to a cheaper gym, cook more meals at home, paint your nails yourself, refrain from shopping, and so forth. While you shouldn’t completely limit yourself from having fun, hanging out with friends, and doing what you love, it’s important to be mindful of your finances and determine areas where you can save.
The bottom line
Managing your personal finances is never on the top of anyone’s list. However, doing so will allow you to live comfortably in the present and the future. With these three tips on how to successfully manage your personal finances, you’ll be on the right path toward a successful future.