5 Keys to Successfully Managing Your Personal Finances
Wouldn’t it be nice if there was a magic formula or one easy trick that made it so you never had to worry about money again? If you’re tired of constantly being stressed out about money, then maybe it’s time to get a hold on your personal finances.
There are five keys that can help you get control of your finances. Follow these five steps consistently, and your financial problems will start to diminish–along with the financial stress that goes along with them.
Start with Goals
The first thing you should do is to write specific goals about what you want to do with your life and your money. Finances can affect many different areas of your life. Your goal to travel the world affects how you will plan your finances. Your goal to retire early is dependent on how well you handle your finances now. Homeownership, starting a family, moving or changing careers will all be affected by how you manage your finances.
Once you have written down your financial goals, you need to prioritize them. This ensures that you are paying attention to the ones that are most important to you. You can also list them in the order you want to achieve them, but remember for a long-term goal like saving for retirement, you should be working towards it while also working on your other goals.
Below are some tips on how to identify your financial goals:
- Start by setting long-term goals like getting out of debt, buying a home, or retiring early. These goals are separate from your short-term goals.
- Set short-term goals, like following a budget, decreasing your spending, or not using your credit cards.
- Prioritize your goals to help you create a financial plan.
Create a Plan
A financial plan is absolutely essential in helping you reach your financial goals. The plan should have multiple steps. A sample plan would include getting control of your budget, creating a spending plan, then getting out of debt.
Once you’ve accomplished these three things, you’ve freed up some major cash, and the money you free up from your debt payments can be used to reaching these goals.
At this point, you should decide what priorities are the most important to you. Keep steadily working toward your long-term retirement goals, but also start to focus on the most important goals you have set for yourself. Do you want to take an extravagant trip? Start investing? Buy a home or build your own business? These are all things to consider when deciding on your next step.
Your goals, along with an emergency fund, will help you stop making financial decisions based on fear and help you get control of your situation.
When creating a financial plan, remember these things:
- Your budget is key to success. It is the tool that will give you the most control of your financial future. Your budget is the key to achieving the rest of your plan.
- You should keep contributing to long-term goals like saving for retirement no matter what stage of your financial plan you’re in.
- Building an emergency fund is another key factor to financial success.
Stick to Your Budget
A budget lets you decide how to spend your money. Without the plan, you may spend your money on things that are not important to you, but you want in the moment, and then wonder why you are never reaching the financial milestones you have set for yourself.
A few things to keep in mind: Even after you are out of debt, you still need to have a budget. It is easy to spend more than you make, and if you stop tracking your spending, you could slide back into debt.
If you are married, you and your spouse need to work together on the budget. This will help you to achieve your financial goals together and prevent fights. Below are some tips for married couples who want to create a budget together:
- Consider switching to an envelope budgeting system that uses cash for the difficult categories.
- Use budgeting software with a mobile app so you can enter spending in real-time.
- Planning ahead can also help you to avoid overspending.
Get Out of Debt
Debt is a huge obstacle to reaching your financial goals, so eliminating it should be a priority.
Set up a debt elimination plan, which will help you pay it off more quickly. While making minimum payments on all your debt, you focus extra money on one debt at a time and then move all the money you were paying on the first debt to the next debt once the first is paid off, creating a “snowball effect.”
Once you are out of debt, you need to make a commitment to stay out of debt. Stop carrying your credit cards around with you, and save up an emergency fund to cover unexpected expenses so you do not need to turn to a credit card to cover them. These tips will help you pay off debt more quickly:
- Sell items to find extra money to kickstart your debt payment plan.
- A second job can help speed up this process and may be necessary if you want to make lasting changes to your situation.
- Look for areas you can cut your budget to increase your debt payments.
Don’t Be Afraid to Ask for Advice
Once you are ready to grow your wealth and begin investing, you should speak to a financial planner to help you make your investment decisions.
A good advisor will share the risks involved in each investment, and help you find products that match your comfort level while helping you work towards your goals as quickly as possible. A financial planner can also help you with your budget, which is another plus.
Remember that investing is a long-term strategy to building wealth. You can also find financial help elsewhere.
- A local church or community center may be offering classes on personal finances and budgeting. Occasionally, banks and credit unions offer courses, as well.
- You can also find a mentor that would be willing to walk you through your budget the first few months. This can help you if you are overwhelmed with your budget.
- If your parents or family members are good with money, consider asking them for help, or sitting down and talking to them about what worked for them financially and what they would have done differently.
Updated by Rachel Morgan Cautero.