Personal finances are a hot topic right now, perhaps because younger generations are finding it harder to afford houses and cars. Especially if you’re going the traditional university/college route: student loans and debt is flying through the roof, so its more important than ever to manage your finances well.
Here are 3 strategies for you to implement right now, so you can take control of your finances!
Disclaimer: This post is for informational and/or entertainment purposes only and should not be construed as financial advice. Please consult a professional for advice tailored to your personal situation.
1. Set a Personal Finance Day Each Month
Set yourself a day each month where you go over the money you’ve spent, pay bills (especially that credit card bill!), and do any other adjustments as needed to your personal finances. This is a great habit to get into because it will make sure you’re in-check with your finances regularly. Of course, it’s always good to go in every week to review your bank balances, investments, and spending. But when it comes to those monthly payments and larger bills, try setting one day each month where you dive into your finances more in-depth.
ACTION ITEM: set a recurring event in your calendar for your monthly “Personal Finance Day”
2. Reflect On Your Current Spending
As you’re looking to take control of your personal finances, the first step is to take stock of what you’re spending money on right now. Are there subscriptions you can cut back on? And where/how often can you splurge a little?
A common misconception when it comes to managing spending and creating a budget is that you have to get rid of every unnecessary expenditure from your life. Spending isn’t necessarily a bad thing: it ensures our economy is healthy (as consumer expenditure is a huge component of economic growth). However, it’s those excessive spending habits or subscriptions you don’t use anyway that eat at your finances.
Creating a Budget
Here’s a quick tip when it comes to creating a budget:
- 50% of monthly income to needs
- 30% of monthly income to wants
- 20% of monthly income to savings
Of course, you might have to adjust these numbers a little based on living costs where you are, but a general rule of thumb is to contribute about 20% of your monthly income to savings if you can. Don’t forget to have your 3 months of emergency savings as well!
3. Explore Personal Finance Resources
There are many amazing personal finance books out there, as well as websites and tools. Reading this article is definitely a great start (yay you!), but I’ll point you to a few more great resources in this post.
I also highly recommend finding some books and resources on investing (which I will explain a little further in #5). A book that is highly recommended though is “Rich Dad, Poor Dad” by Robert Kiyosaki.
4. Manage Debt Well
First off, I want to preface this by saying not all debt is bad. Usually you do want to avoid debt, but there are cases where it might not be as bad as you think. Consider buying a house, for example. If you have a really affordable house you’re looking at where you can just drop the full value in cash to buy it (and still have a lot of money left over), then it might not be worth a mortgage. But even if you do have cash, it might be good considering a mortgage as well. Particularly, it means you can put your other money into other investments, so you’re not throwing all your money into something as illiquid as a house all at once.
In addition, if you’re looking to build credit, then debt is a good thing to build up your credit score (as long as you can manage it well of course!).
If you are looking at a huge amount of debt right now, and it seems like a really daunting thing to pay back, here are some ways to help you get out of debt.
5. Start Investing
If you’re just letting your money sit there as cash in the bank, chances are you’re making only pennies or dollars in interest. The real money growth lies in investing.
Now, the concept of investing might seem quite overwhelming if you’re new to it all (don’t worry, I get it): like, what does “dividend” mean? “Market cap”? “Short sell”? I’d recommend checking out Investopedia, as it explains all these terms in an easy-to-understand way.
A great place to start is plugging your money into an index fund (which essentially aggregates returns from a select number of companies). You’re mostly betting on the U.S. economy as a whole when you get an index fund that tracks the S&P 500, for example, which includes the 500 largest companies listed on the stock exchange in the U.S.
Bonus: Managing Finances For Your Business
Hello my fellow business owners! Just as you should keep your finances in check every month, make sure you are on top of your accounting as well! It’s a great thing to go in every month and review results, and then update your accounting records (particularly if you’re DIY-ing your accounting…and are using the accrual based method). See if you have any outstanding invoices, or what your upcoming months will look like revenue wise, etc.
Hope that was a useful article for you as you’re looking to get your personal finances in order! If you have other tips to share, feel free to share them below. 🙂