If you want to create a financially secure life in the future, you need to start acting today. Some people believe it is rather daunting to keep your personal finances in order. In reality, you don’t have to be an expert to manage your funds and avoid common monetary issues. Are you ready to work towards your long-term financial security? Some money goals can be for the short term while others are meant for the longer period. Keep on reading to check the best rules of personal money management and get some useful insights from our interview with a financial expert.
Basic Rules of Personal Finance Management
It’s not rocket science to keep your personal finances in order. When you become a financially literate person, you won’t need to worry about debt, crisis, instability, or your future retirement. Following these easy but important steps can teach you how to maintain financial stability and work your way towards a secure future with solid retirement savings. It’s time to get rid of your monetary disruptions and learn how to manage your cash.
#1 Pay Down Existing Debt
One of the first pieces of advice on how to improve your financial stability is to get rid of your existing debt. Whether it is a student loan, a credit card debt, or a 300 dollar loan until the next payday, go ahead and try your best to become independent. Being debt-free is crucial to establishing your stability. It will allow you to make the next steps easier and know exactly how much funds you have.
The interest rates for credit cards and other lending options can be really high. Even if you owe to a local bank, you still need to pay your debt off together with interest. It was mentioned in the Federal Reserve Survey, that the average interest on a two-year personal loan from a traditional bank was 9.6% in March 2020. The following steps will teach you how to avoid debt in the future.
#2 Craft a Monthly Budget
This may not be the funniest tip but creating your budget is essential in order to reach your short-term and long-term financial goals. Whether you have a regular full-time position or have a side gig, or work as a freelancer, you should establish your monthly budget with all of your expenditures. It can be an online spreadsheet or a table written on a piece of paper. Its purpose is to showcase your current situation and help you realize what you need to omit or alter in order to reach financial stability.
Almost half of Americans claim they don’t have enough clarity on how much they can afford to spend on a monthly basis vs. how much they should be saving for their future. Creating a budget can significantly help to improve this situation and demonstrate what categories might be omitted.
#3 Establish an Emergency Fund
The survey conducted by the FederalReserve.org revealed that over 40% or American consumers won’t be able to cover a $400 emergency. It means even people with steady employment don’t know how to save enough and to establish an emergency fund so that you can pay for any unforeseen costs from your own pocket without taking out debt.
Experts advise you to create an emergency bank account and put a small portion there each month until you have at least three months’ worth of living expenditures. If you have enough costs for six months it will be even better. This way you will secure yourself and your family from financial curveballs and unpredicted costs won’t unsettle you.
#4 Save for Your Retirement
You may be in your 20s or 30s thinking you have plenty of time ahead to start planning your retirement. However, time goes by really fast and the best time to start saving for retirement was yesterday! It’s up to you how much you are ready to allocate each month on your savings account but starting earlier will mean smaller monthly savings in the long run.
When you turn 50, you should have six times your current salary in this account, and when you turn 60, experts advise consumers to have 10 times your salary. The Survey of Consumer Finances demonstrates that the average retirement savings for all American families was $255,130. The average savings toward retirement for all households was $65,000.
Interview with a Financial Coach: Answers to 3 FAQs
We’ve decided to ask Robert Pagliarini, a famous financial expert and a coach on retirement planning, a few questions about personal finance management.
Q: What do you think about investing?
A: In my opinion, people should invest more in themselves. This is probably the best and the safest investment you can make today. Invest your time and money in good education, extra training, additional courses, and further certifications. This will not only boost your knowledge and make you a better specialist in your field, but it will also help you earn more for your work and strive for financial stability.
Q: When should common consumers start saving?
A: The earlier the better. There is no one-size-fits-all answer to this question. But even when you are getting a degree and having a part-time gig, you can start saving a few dollars per week. This habit will stay with you as you grow up and will help you think about your future constantly. Once you have a regular position, it will be easier to allocate a bigger sum on a monthly basis. Failing to save for emergencies or for your retirement can cause serious monetary issues.
Q: What is a good example of budgeting?
A: To my mind, turning to a 50/30/20 budgeting scheme can facilitate this process and make a consumer understand where the money goes. This approach is easy to follow. You should allocate 50% of your monthly income toward essential expenditures such as mortgage, rent, and groceries, spend 30% or other necessary costs (mobile phone, Internet bills). The rest 20% of your income goes to saving and building an emergency fund. As a result, following this simple rule, you will be able to save for a down payment on a new auto or a house.
In conclusion, personal finance management is essential for every consumer who strives to improve their standards of living. Boosting your financial literacy is necessary as it will help you avoid monetary disruptions and become more financially fit.