5 Ways You Can Manage Your Finances Better
BY: BORIS DZHINGAROV ON THURSDAY, JULY 26, 2018
Financial management should never be an afterthought in your life. Rather, it should be an essential skill. If you don’t know how to manage your money, you may sink further into debt or risk being financially insecure in your senior years. There are major mistakes many young people make when it comes to money, so which money management mistakes do you make?
1.You Don’t Know What You Spent Your Money On
You may meticulously keep a record of the amount of money you earn each month from your job and various side gigs, however, do you similarly note down how you spend that money? In other words, do you know what your expenses are compared to your income? If the answer is no, that means you are not budgeting or have a household budget. This is mistake number one in basic money management. You absolutely must have a budget to understand how much money you are spending on essentials such as food and rent, as opposed to debt payments and avoidable entertainment expenses. If you don’t have a personal budget yet, it’s time to make one.
2.You Haven’t Even Thought of Investing
If you are young and have just started a career, it might not occur to you do anything with your money other than spend it, but youth is the best time to start investing a portion of your money. Investments grow over the years, so the younger you are when you start, the more time the interest rate would have to compound. If you are a risk taker, you can consider investing in penny stocks carefully. It’s all about knowing the best penny stocks to buy though. You can also take the safe road and invest in certificates of deposits or open a regular savings account. It’s best to have several forms of investments for both short and long-term benefits.
3.You are Not Investing for Retirement
Retirement is probably not the first priority on your mind if you are saving money for a down payment on your first home or car, but retirement can creep up on you before you know it. As mentioned above, you should start investing early to reap the most benefits. The same goes for saving and investing for retirement. You should ideally match the contributions made by your employer in your 401(k) plan. In addition, you can also open an individual retirement arrangement or an IRA. You could even open a small, long-term savings account for the purpose. In any case, you must start thinking about retirement as early as possible.
4.You Don’t Have an Emergency Savings Plan
In addition to regular savings and investments, an emergency savings fund is absolutely critical in life. No one plans for emergencies, but if you accidentally get sick or if the car suddenly breaks down, you will need access to small but significant amounts of cash within a small time frame. If you have saved up for these situations, you can easily withdraw money from the bank. If not, you may be forced to take expensive short-term loans that would push you deeper into debt.
5.You Lack a Debt Repayment Strategy
A vast majority of Americans are in debt, so you may not be an exception. Young people are highly likely to be indebted because of student loans, mortgages, or even vehicle loans. Regardless of the type of debt, have a solid plan in place for repaying this debt. You could even seek counsel from a financial advisor to come up with a debt repayment plan. Start by paying off your highest interest loans first. Make a plan within a time frame to get rid of debt in 2 years, 5 years, or even 10 years without carrying the burden into retirement.