Managing personal finances is a challenge that all people have to deal with. While it seems like it would be a simple process, even those that are financially literate struggle with managing debt and saving money. Fortunately, there are seven smart ways that you can master your finances and gain financial freedom.
1- Establish Goals
Before you start any process of building your financial future, the first thing that you need to do is establish your personal financial goals. Financial goals can be long-term goals, such as saving for retirement, or more short-term goals, such as saving enough for a down payment for a home. Regardless of what the goal is, you should first develop a defined goal so you can start building a plan to achieve your goals.
2- Determine Poor Behaviors
When you are looking to master your finances, another important step is to determine what poor behaviors you have when it comes to spending money. Most people are aware that they can cut back on spending, but are not aware of how much they do overspend each month. It would be a good idea to carefully track your spending for a month or two to get a better understanding of where all of your money goes. Once you have been able to identify what patterns of behaviors get you into trouble, you will be better able to create new spending processes that will help you to pay down debt and save money.
3- Pay Off Debts First
Once you have developed a clearer picture of your financial goals and can understand what you need to do to achieve those goals, the next step would be to pay off your debts. The biggest problem that many people have is that spend a lot of money each month paying interest on credit cards, auto loans, and student loans. A big focus for you should be to pay off all of your debts with particular focus on paying off your higher-interest credit card accounts first and then ultimately paying off your lower-interest loans. Once you have paid off these debts, you will have a lot more money to roll into savings each month.
4- Emergency Savings
After achieving financial freedom from debt, you should next ensure that you have an emergency savings account established. All consumers should have at least 12 months of living expenses saved in a liquid account. This money will be available for your use in the event you lose a job, need to make a major repair, or suffer another type of financial setback. This will help to make sure that you are able to avoid accumulating more debt if you do suffer a financial setback.
5- Take Advantage of Retirement Accounts
When you are starting to save, you also need to focus on saving for your future. A big part of this will be to save for retirement in an appropriate manner. One of the best ways to do this will be to take advantage of retirement accounts, which include 401ks and IRAs. These accounts provide you with big tax benefits, which can help to reduce your ultimately tax bill and delay when tax payments need to be made. Many consumers can also take advantage of employer-sponsored retirement accounts, which often come with an employer match, which is essentially free money.
6- Be Insured
While it can seem like an unnecessary expense each month, you also need to make sure that you are properly insured. All consumers need to have some level of health, auto, life, and home insurance. These types of insurance will provide you with a lot of financial support in the event you incur a certain type of expense. It is important that you carefully assess your insurance needs and buy the right type and amount of coverage.
7- Manage Your Credit
When you are focusing on your financed, you also need to work on improving your credit score. Your credit score will impact your ability to receive good rates on loans when you need them. Having a good score can save you a lot of money over time. Some of the best ways to get a good score including paying down your loan balances and making all debt payments on time.