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4 Simple, Savvy Personal Finance Tips
It is very difficult to tame your personal finances when they get out of control. But what most people don't know is; you don't need to be some sort of finance guru to efficiently and effectively manage your finance. Sometimes, all it takes is a few tweaks here and there to make the world of difference. Here are a 4 simple, tips you can employ that will net you great results when managing your personal finance.
1 - Analyze the Heck Outta Your Spending!
Some of us have bad spending habits we are completely unaware of. Whether it’s purchasing clothes you will never wear, micro-transactions through smart phone apps or just a few kindle books because they were only $4.99. Check your Debit Card or Credit Card online accounts to see if there is a “spend analyzer feature”. This feature breaks down your purchases on your credit or debit card by categories such as: Entertainment, Groceries, Utilities, Transportation, etc. I included a screenshot of Discover's Spend Analyzer as an example. Having detailed knowledge of your spending habits is very important in managing one’s personal finances.
2 - Budget like a Boss!
I know…this again! A lot of people are frustrated by budgets and besides it being tedious work to set up and manage, it is also very discouraging when you go over your budget. To avoid this you should try to set realistic goals according to your own personal spending analysis. If you take a Cab to work on average 3 days a week at the cost of $15 per ride, your budget shouldn’t eliminate these cab rides altogether. Instead, set an allowance for 2 days per week instead as this will make the transition smoother. Revise your budget as you see fit but try to do it systematically, for instance (every 6 weeks or 3 months). Reducing the allowance for every category all at once can be overwhelming, so schedule times at which you will implement new budgets for each category.
3 - Don’t Forget to Save!
If you have a specific savings goal, you need to first identify the goal amount and the timeframe in which you want to achieve it by. Let’s say you want to buy a new laptop in 12 months and you estimate it will cost $1200. You now know that you need to save $100 ($1200/12) a month in order to achieve your goal within that timeframe. If $100 per months is outside your ability to save, consider tightening your budget further or expanding your timeframe. Depending on the timeframe, it may be very beneficial to save for your goal in the relatively safe Mutual Fund or a Money Market Account. These accounts are fairly liquid and you can retrieve your money within a few days. Betterment, Vanguard and Fidelity are just a few that offer options to open such accounts online. I am not an investment professional, so speak with one about your specific needs or do some research to determine which would be right for you.
Paying off Debt
4 - Pay your Debts… Please!
Neglecting to pay or paying debts slowing is only hurting once person… The common sense Goddess! She face-palms every time we do something foolish. Revolving debts such as credit cards are among the most common debt type and they are usually very expensive. In reference to your savings budget in step #3, I strongly believe that high interest debts like credit cards should be paid off BEFORE you begin saving money. At the same token, you need to keep some cash on hand for emergencies that may require it. Just keep an emergency cash reserve for those ugly, surprising expenses such as repairs and the rest should go toward eliminating credit card debts. The reason for this is: It is almost impossible save money where you could accumulate as much interest as your credit card charges. So aside from your emergency fund, your excess cash should go to relieving the burden of a high interest debt rather than sitting in a saving account collecting little to no interest. At the same token, if you can get 8% interest from a Mutual Fund or Money Market Account, you should not be so hasty as to pay off debts like (student loans) that are typically less than 8%. You apply the inverse of this principle and pay the loan’s minimum payments and invest or save the remainder of your savings budget.
Check out this related article explaining How APR and APY Works to better understand your credit card.
More food for Thought!
There is a book, the first book that changed my thinking of personal finance as a whole. My idea of money did not exceed: Making it, spending it and saving it. Rich Dad Poor Dad by Robert Kiyosaki really added a lot of dimensions to money for me. Click the sponsored link to check it out or at least read the reviews to see what others are saying about it. I genuinely believe it's worth it's weight in gold. Drop by the poll below or leave a comment with feedback.
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