Personal finance is something that one is seldom taught at school. One does get a few tips from one’s parents, but to take charge of one’s finances, one needs to know more.
Not being sure of financing decisions in one’s life is a commonplace situation, and almost 70% of adults below 35 years of age find investing confusing.
One does not need to be a financial expert, but knowing the basics of personal finance helps and prevents financial disasters. Here is a list of some basic things one should know about personal financing:
- Budgeting works for (every)one
One should overlook the negative connotations attached because budgeting makes one sure of where one’s money goes. The goals that matter in life become easier to achieve. One can make a start by tracking one’s spending for at least 30 days. Expenditures should ideally be less than your earnings.
- Make an emergency fund
It may be difficult for one to be sure of matters such as when one’s car will break down. One should have some emergency funds for meeting such challenges head-on. This is an effective safeguard against high-interest card debt.
One of the best ways of going about the same is to save some money each month for an emergency fund. One should ideally have three to six months of living expenses saved up.
- Credit card balance shouldn’t spiral up
Credit cards are among the most expensive debts available. So one should try and pay off the credit card bills each month, not just the minimum payable amount.
- Timely payment of bills
When one does budgeting well and maintains an emergency fund, it puts one in a better position to make one’s payments on time. Setting up calendar reminders for automatic payments is a fine idea in this regard. This is a safeguard against having to pay a late fee and keeps the credit score healthy.
- Initiating retirement savings early
When one gets started early with one’s retirement savings, one gets more years to save. The power of compound interest comes into play over here.
You may want to contribute to an employer-sponsored plan, such as 401 (k), in particular, if your employer matches your contributions.
Numerous investment options are made available for retirement accounts, like bonds, mutual funds, and stocks. So, one should lookout for a diversified portfolio, based upon the number of years available before one retires, and one’s risk tolerance levels.
In case one is maxing out one’s retirement funds, one should invest in alternative ways, such as a brokerage account or a Robo-advisor.
- Buying insurance
Insurance keeps one prepared for the worst. This comes in the format best suited to an entity, such as health insurance and car insurance.
A few insurances are a legal necessity, such as car insurance if one drives a car.
- Making the best of credit card points
When one opens and closes too many credit cards successively, it negatively affects one’s credit score.
Instead, when one keeps one’s credit score high, it brings in credit card reward offers, such as cashback on purchases and travel miles.