Many of the opportunities available to you are dictated by your financial situation, making it difficult to overstate the importance of taking care of your personal finances.
When it comes to managing money, most of us have room for improvement. Understanding your current financial situation, setting goals, and making a plan are all important steps for improving your financial situation. The sooner you take control of your personal finances and put in the work to reach your financial goals, the sooner you can begin living life on your own terms.
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Here are 14 tips for revamping your personal finances even when money is tighter.
1. Track Your Spending
The first step in taking control of your personal finances is understanding where you are spending your paycheck each month.
Tracking your spending allows you to gauge how much of your budget goes towards essentials like your mortgage, rent, and insurance and how much of your spending is allocated towards less crucial areas, such as subscription services, shopping, or eating out.
The more information you have about your spending habits, the more informed your decisions will be about how to allocate spending in the future.
To track your spending, you can use budgeting apps like Mint or Goodbudget or you can do it yourself using a spreadsheet or even a plain old pen and paper. Group your purchases into categories so you can get a sense of your spending patterns. Once you understand and track your spending, you can decide where to cut down.
2. Create a Budget
Creating a budget allows you to start saving for the future and is the only dependable way to reach your financial goals. After tracking and understanding your spending habits, you can create a realistic budget that works for your specific goals and lifestyle.
Start by setting feasible spending goals and allocating a designated amount for each category of expenses, such as groceries, subscriptions, entertainment, etc. Review your budget regularly to gauge whether or not you are staying on track, and don’t be afraid to make modifications as you go along.
Adjusting your budget is always better than abandoning it all together, so don’t be ashamed if you need to make changes to your budget in order to stay on track.
3. Reduce Debt
It can be especially difficult to build your savings and achieve financial security if you are struggling to make interest payments on your debt. Holding a large amount of debt presents additional financial challenges, and making a plan to efficiently eliminate debt goes a long way in taking control of your financial situation.
There are two main strategies when it comes to reducing debt. The first (and most common method) is the snowball method. This strategy involves paying off loans with the lowest interest rates first and gaining momentum before tackling loans with the highest interest rates.
The drawback to this method is that you will continue paying high interest rates for a longer amount of time, which will cost you more in the long run.
The other strategy is the avalanche method, in which you pay off the loan with the highest interest rate first and work down from there- paying off the loans with the lowest APR last. The avalanche method can be more difficult to achieve but is generally thought of as the most cost effective way to reduce your debts.
Regardless of which debt reduction strategy works best for you, it is important to take steps to reduce your debt so you can ultimately regain control of your personal finances and start saving for what is important to you.
4. Increase Savings
Savings provide an important buffer in the event of a financial emergency and help you achieve your long term financial goals. Important milestones, like purchasing your first home or investing in your own small business can help grow your wealth substantially. But first, you need to put in the work to build your savings account.
Diligent budgeting and goal setting are the best ways to grow your savings. One popular framework for boosting your savings is the 50/30/20 rule. The idea is to allocate 50% of your income for needs, 30% for wants and 20% for savings.There is no one size fits all when it comes to saving, but this general framework can be helpful when getting started.
5. Invest in Your Future
If you keep your hard earned cash sitting in a savings account, your earnings will depreciate over time. Investing your savings protects you from the effects of inflation and can build wealth in the long run.
The three main types of investments are stocks, bonds and mutual funds. Each type comes with varying levels of risk. Stocks generally have the highest risk, but also the greatest potential for higher returns.
Bonds (or even annuities) are usually considered lower risk, but have a lower rate of return. Regardless of which route you decide to take, it is important to invest your savings so you can make the most out of your hard earned savings.
6. Plan for Retirement
A big part of financial security is planning for the future, and by saving for retirement you are taking steps to preserve your independence when the time comes to stop working. While it may seem far away, the sooner you start saving for retirement, the better.
There are several kinds of retirement investment accounts with significant tax benefits that are worth considering, like 401ks or Roth IRAs. The exact amount you should save each year depends greatly on your current age, lifestyle requirements and other considerations. The most important thing is to begin taking steps to save for retirement now- your future self will thank you!
7. Protect Your Finances
It is impossible to know what the future holds, but it is always possible to take steps to protect yourself and your loved ones in the event that the worst case scenario happens. Because disability, illness and death are painful to think about, many people leave themselves financially vulnerable to these risks.
Disability and life insurance are important ways you can protect yourself and your loved ones financially if something happens to you. You should also plan your estate and write your will so that your wishes are followed. Although difficult to think about, you should not leave these matters up to chance.
8. Evaluate Your Insurance
Making sure you are adequately covered by insurance is another important part of becoming financially responsible and secure. To protect against potentially devastating financial consequences, you should thoughtfully review any insurance you may have, such as auto, home/renters and health insurance.
When evaluating your insurance you should review coverage and cost and compare your current plan against other options. You should also check in regularly to consider whether you may be in need of a new type of insurance coverage such as disaster insurance, pet insurance etc.
9. Review Your Credit Report
Reviewing your credit report gives you important information about your current credit standing, and can help you make future decisions to improve your credit going forward. Regularly reviewing your credit report also helps protect against fraud as you will be able to catch identity theft before it gets out of hand.
When reviewing your credit report, scan for unrecognized accounts, payments marked as past due and any new credit inquiries. Unrecognized credit inquiries could indicate that someone applied for a new account in your name so be sure to act swiftly if this is the case.
10. Improve Your Credit Score
Your credit score has a huge impact on the financial opportunities available to you. With an excellent credit score, you will be more likely to be approved for loans with the lowest interest rates and credit cards with the best benefits.
To boost your credit score, be sure to make on time payments on your loans and credit cards, and aim to spend less than 30 percent of your monthly credit limit.
11. Refinance Your Loans
If market conditions have changed, or if your credit score has improved since you took out a loan, you might be able to secure a lower monthly payment by refinancing your loans. You can refinance various types of loans, including student loans, mortgages, auto loans and even credit card balances.
When you refinance your loans, you change your loan terms, so it is important to weigh the costs and benefits and research whether refinancing makes sense for you. If you do decide to go forward with refinancing your loan, make sure to get multiple loan estimates in order to choose the best option for you.
12. Negotiate Bills and Expenses
Much of your monthly budget is likely going towards bills. Luckily, it is possible to save hundreds of dollars a year by negotiating internet, cable, gym membership and home security bills.
Do research on the specific company you are going into negotiation with and gather information about how long you have been a customer. Once you are ready for the call, remember to be polite yet firm, and prepare yourself for the possibility that you might be unsuccessful.
If the thought of negotiating makes you shudder, there are companies that will negotiate your bills for you. Each bill negotiation service has different terms and guarantees, so investigate which company is the best fit for you.
13. Use Technology to Manage Finances
In this day and age, there are a plethora of apps and websites designed to help you manage various aspects of your financial life. Use technology to your advantage to help ease the burden of managing your personal finances.
Apps like Mint and YNAB help you budget, while Acorn helps you make smart investments. There are even online tools that help you negotiate your bills or repay your debts. No matter what your financial goals are, there is an app out there that can help you achieve it.
14. Seek Professional Advice
If you feel overwhelmed by the prospect of tackling these financial tasks on your own, your best bet could be to seek professional advice. It takes significant time and effort to manage your finances on your own, and it might make the most sense for you to seek professional help with your personal finances.
Luckily there are many specialists who can help you reach your financial goals. Consider which kind of financial services you need and how much you are willing to spend. There are many people out there who can help, so don’t be afraid to take the next step in planning for your financial future.
When it comes to revamping your personal finances, there are many aspects to consider, including your current spending habits, goals and plans. Taking care of your personal finances will set you up for success in the future and can lead you on the path to financial freedom, so don’t wait to start revamping your personal finances.
Article by John Boitnott, Due
About the Author
John Boitnott graduated from UC Santa Barbara with a Masters Degree in Education. He worked for 14 years as a broadcast news writer for ABC, NBC, and CBS News where he covered finance, business and real estate. He covered financial news for SAP for four years. Boitnott is now working as a columnist for The Motley Fool where he covers personal financial and investing strategies.