Remember when you were young and could not wait to grow up?! What were we thinking, right? As it turns out, adulthood is full of responsibilities and obligations. One of the first responsibilities you will face as an adult is managing your personal finances. Read on for some of our best advice on personal finance management…
1) Spend less than you earn:
This rule is otherwise known as Personal Finance 101. It is one of the most basic principles of personal finance management. It’s the one point that comes up time and time again in almost every personal finance book you read or talk that you hear. Why? Because it’s true. You can achieve this goal by both spending less and earning more. By focusing on either (or both) of these areas, you can increase the gap between those two numbers. The harder you work on either spending less or earning more, the bigger that gap will become and easier it will be to build your dreams.
2) Earn more: Sure, it sounds easier said than done, but there are numerous ways to grow your nest egg. The trick is to find passive income streams. Passive income streams are profitable ventures that may require some work to set up but for the most part will bring in money with very little effort. A great example of this would be investing in stocks or selling your handmade goods online. You may need to spend time on these these initially, but once completed you could be earning money in your sleep! Tap into your passions and find a way to market and sell them.
3) Live frugally: Living frugally doesn’t mean you have to be cheap. However there is something to be said for making smart financial decisions. Need a new car, buy used; need new clothing, buy consignment; need to slash your budget, eliminate unnecessary services/products and take advantage of discounts and sales when possible. The goal is to maximize every dollar you bring in.
4) Build an emergency fund: An emergency fund is an amount of money you keep in a savings account that’s intended to be used in the event of a major crisis, such as a job loss, a medical emergency, major car damage, and so on. It is recommended to have three months worth of expenses saved for an emergency. However, any amount in savings will be a help should you need it. Can’t afford to dedicate a set amount from your regular paycheck? Save your change from each cash purchase and add that to your fund or even host a yard sale and use the proceeds to begin your savings fund. Add money to your account whenever possible.
5) Manage your credit: Your credit score can be the single most important number in your adult life. It will determine your eligibility for jobs, and home or auto loans, and credit cards. Your credit score is determined by a number of factors (see chart below).
In general, you should use the following rules when managing your credit:
- Makes every effort to pay your bills in full and on time . Payment history is the single most important factor when determining credit score.
- Pay down your credit card debt to less than 1/3 of the available balance on each card. This will improve your debt to credit ratio in addition to establishing positive revolving credit sources.
- Review your credit regularly to verify the items on your report. It is common for a credit report to contain errors and many errors go unreported.