Many people operate under the mistaken impression that financial planning is something only available to the wealthy or that you have to have vast personal resources to make it worthwhile. The truth is, however, that most people don’t become wealthy without creating a plan and instituting personal discipline with their finances. No matter where you are in life’s journey, it is never too early or too late to start getting a handle on your personal finances. Here are five basic steps to managing your personal finances.
1. Track your spending and create a budget
In order to actually stick to a budget, you need to create a budget that is realistic. The truth is that you may have certain large expenditures each month that you already budget or plan for to some degree. When they start tracking all of their spending, however, most people are surprised to discover just how much money they spend each month on small purchases like food, coffee, ride sharing or entertainment. More often than not, getting your personal finances in order will require you to make changes in your spending habits. Before you can change how you spend money, you have to understand where it is all going.
2. Set personal financial goals
If you are like most people, there are things you want to do that you don’t feel you currently have the money to do, such as traveling or saving up money to buy a home. In reality, you might actually have the money for the things you really want if you didn’t spend it on things you don’t really want. Debit cards and credit cards make it a little too easy sometimes to casually spend money on things you don’t really want. By analyzing your spending, you can create a plan to spend less money on things you don’t really want in order to free up more money for things you really do want.
Budgeting isn’t always about spending less; it is about spending less on things you want less so you have more to spend on things you want more. Achieving financial goals requires setting and adhering to certain personal financial disciplines. You will most likely find you will have far more motivation to adhere to those disciplines when they help you get something you really want.
3. Make a plan to pay down debt
Every month that you carry debt is a month you are spending a significant portion of your finances on interest. Some debt has a fairly low interest rate such as student loan debt or a car payment. Other debt, such as credit card debt, carries a fairly high interest rate which racks up significantly each month.
By using a professional debt consolidation service like Brice Capital, you can consolidate your debt into one lump sum that allows you to make a single payment each month for all of your debt. In some cases, Brice Capital may be able to help you get a lower interest rate on your debt or even reduce the amount that you owe, which can help you pay down your debt faster.
4. Create margins
As many as 78% of American workers live paycheck-to-paycheck. What’s even more alarming is that 40% of Americans can’t even cover an unexpected $400 expense without having to borrow money or sell something. When creating your budget, it is important to not only set aside enough money to cover your expenses and pay down your debt, it is also important to set money aside for savings. If you aren’t making enough money right now to pay all of your bills, pay down your debt and set some money aside for savings, you may need to find an additional source of income. Thankfully, the gig economy is booming and there are plenty of ways to pick up a little extra cash with a side hustle.
5. Start investing
You may not want to start investing until you have your high interest debt paid off, but eventually, you want to put your money to work for you. The same way that creditors grow their money by charging you compound interest, you want to eventually stop paying compound interest and start earning it instead. You don’t have to be independently wealthy to start investing either. You can start with just a few dollars a month by using a service like Acorns. A simple investment tool like Acorns is not likely to be a good option for most people long term, but it is a great way to get your foot in the door in the world of investment. Once you have a more substantial nest egg built up, you can graduate to more sophisticated tools that will provide a higher rate of return.