That’s okay. A few simple financial planning basics are all it takes to take you from anxious to a person with a plan.
So take a deep breath. You’ve got this. Let’s dive right in.
1. Set Up a Budget
First things first to get your personal finances in order, we need to know how much money is coming in and where it’s going out.
The best way to do this is to sit down with the past three months of your credit card or bank statements and track each transaction in a separate category. Note, you won’t have to budget by these categories.
The more specific you get, the more data you have to manipulate which can be helpful. But too many categories can feel overwhelming.
Also write down where the money comes in, and how much.
Then you take the in minus the out. Hopefully, there’s more in than out.
If not, now you can easily spot areas to cut back on. Use these cutbacks to free up wiggle room in your budget for paying off debt, savings, or other future big expenses.
The biggest categories where you can find the most savings include your rent, your car payment, subscriptions, eating out, and your grocery budget. You have a lot of flexibility in these categories, and finding ways to cut back can save thousands of dollars a year.
2. Set Up an Emergency Fund
Once your budget is in place, include a line to save up an emergency fund. This needs to be a bare minimum of $1,000. As you want, you can stretch this out to cover six months to a year’s worth of expenses.
That way if something goes awry, like a pandemic, you have some financial support to help you through.
3. Get In the Habit of Saving
When it comes to saving money, earlier is always better, so even if you can only save $10 a month, start setting aside something. Years later, you’ll be grateful you started saving when you did.
Why save? The list is endless.
Saving is an essential part of financial management. Learning how to save money doesn’t have to be hard, and the internet is full of money-saving tips to help you maximize your savings.
4. Pay Off Debt
Why is it important to pay off debt?
The answer is twofold. One: debt stacks, for a long time. This is especially true for debt with high interest rates, like payday loans and credit card debt.
Two: it frees up more room in your budget. What would you do with all the extra money you’re currently paying on debt?
5. Plan For the Future
It’s never too early to look ahead. You may want to open self-directed IRA. Because there are so many different types of retirement account, it’s worth taking a precursory glance to ensure you’re making a good choice.
Financial Planning Is Essential For a Secure Future
Financial planning is the key to help you design your life the way you want. The steps listed above will help you cover your basics and get you started on a good foundation.
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