Learning how to manage your finances isn’t easy. For starters, there’s so much to think about: Budgeting, debt, credit, savings, spending, interest rates… it never seems to stop.
And then there are our emotions – because let’s face it, everyone has a few hangups when it comes to money, right?
Some of us just get plain stressed whenever we think about the importance of personal finance. Others can’t think of anything worse than budgeting. And plenty of people get sidetracked by the next new finance craze, like crypto-currencies or peer-to-peer lending.
So, if you want to learn how to manage money better, here are 30 personal finance tips. Let’s start with some personal finance basics. Here are a few essential money management tips for laying the foundations.
Create a Budget
This is arguably the most essential piece of money advice out there: Make a budget (and stick to it).
The author John C. Maxwell explains budgeting perfectly, “A budget is telling your money where to go instead of wondering where it went.”
Stay Organized with Budgeting Apps
Learning how to budget your money is not an easy task, so why not make it easier for yourself?
Another top personal finance tip is to use budgeting apps. These apps can help you bring all of your finances into one simple dashboard. Check out top budgeting apps like You Need a Budget, Wally, and EveryDollar.
Create a Financial Calendar
Okay, if you’re like many people, this list may already be making you anxious! If that’s you, it’s okay – you got this.
Plus, this personal finance tip isn’t as scary as it sounds.
To create a financial calendar, set reminders for important financial tasks, such as paying quarterly taxes, and checking your credit report. This quick financial tip can help to save you a ton of hassle down the road.
Track Your Net Worth
Your net worth is the total sum of your assets minus the total sum of your debts.
For example, say you have $1,000 in the bank, a car worth $1,000, and $500 of credit card debt. Your assets are worth $2,000, and your debts are $500. So, your total net worth is $1,500.
Monitor your net worth and keep trying to improve it. If you have a ton of student loans, it’s not uncommon to have a net worth of –$100,000. If this is you, don’t stress – just take it one step at a time. (Oh, and remember that your net worth is not how much you’re worth as a person – you’re worth more than you can imagine!)
Don’t Make Impulse Purchases
Everyone makes impulse purchases from time to time, but they can quickly drain your bank account. So, the next time you see something you just ‘have’ to buy, wait a week before you hand over your cash.
The time will give you room for some perspective. Then, if you still want to buy it, you’ll know it’s definitely worth your money. Chances are, you’ll decide to keep your money. As the cartoonist and journalist Kin Hubbard said, “The safest way to double your money is to fold it over and put it in your pocket.”
Now, let’s check out some simple money management tips to help you deal with debt.
Get Clear About Your Debt
Gulp. Really? Yep. Start by writing down the total amounts of everything you owe, as well as the interest rates, monthly minimum payments, and any loan payback lengths. Then, keep this document up to date.
Remember, knowledge is power.
Understand Interest Rates
Interest rates are significant. They determine which debts to pay off first and which credit cards to avoid. They also help us understand how debt works – compound interest is a cruel master.
I mean, even Albert Einstein noted the importance of the concept: “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” So, make sure you understand the interest rates that affect your finances.
Pay Off Your Debt
When tackling debt, there are two main personal finance strategies:
Avalanche: Keep up with minimum payments on all of your debt, but focus on paying off the debt with the highest interest rate first. This method aims to reduce the amount of money you pay back overall.
Snowball: Focus on paying off your smallest debt first, regardless of the interest rates. Although you may pay more overall, the sense of empowerment and achievement could help you pay off your debts faster.
Avoid Debt and Learn About Credit
Here’s a piece of essential personal finance advice: Avoid debt. As Thomas Jefferson, the third President of the United States, said, “Never spend your money before you have it.” Still, in a few situations utilizing credit can make sense.
When used effectively, it can help you purchase a house, a car, or manage your medical bills. However, when used irresponsibly, it could spiral you into a mountain of debt that will rob you of the future you want. No pressure.
So, whatever you do, make sure you understand how credit works, in detail.
Track Your Credit Score and Report
Your credit score can have a massive impact on your ability to rent somewhere to live, purchase a car, get a mortgage, or even sign up for basic utilities. So it’s vital to understand how credit works and check your score and report regularly.
Ideally, you need to get your credit score into the blue zone, at more than 740 points:
Keep Your Credit Utilization Rate Low
Your credit utilization rate is a measure of how much of your available credit you’re using. For example, if you’re able to borrow up to $1,000 dollars on a credit card and your balance is $250, your credit utilization rate would be 25%.
A high credit utilization rate will negatively impact your credit score. So, the general rule of thumb is never to let your credit utilization rate be more than 30%. No list of personal finance tips would be complete without tackling savings. So, here’s some money advice on how to build up a nest egg.
Create a Savings Plan
The French writer and pioneering aviator Antoine de Saint-Exupéry said, “A goal without a plan is just a wish.” Turn your wishes into goals by creating a savings plan (and – you guessed it – sticking to it). Work out what you’re saving for and how much you plan to save every month. Then, try to get into a rhythm of putting money aside each month.
Use the 50/30/20 Rule
If you’re struggling with budgeting and saving, consider following U.S. Senator Elizabeth Warren’s 50/30/20 rule. The idea is to spend your income in the following way:
- 50% on needs, such as groceries, housing, utilities, and health insurance.
- 30% on wants, such as dining out, shopping, and hobbies.
- 20% on savings, such as emergency savings, a college fund, or a retirement plan.
Pay Yourself First
Here’s the idea: Don’t spend your money and save what’s left – instead, save first and then spend what’s left. Personal finance expert Dave Ramsey said it best: “Saving must become a priority, not just a thought. Pay yourself first.”
Separate Your Savings
If you keep your savings in your checking account, there’s a good chance you’ll dip into them from time to time. Avoid this common error by creating a separate savings account. Plus, some bank accounts pay a little interest on money held in savings accounts.
Cut Back on Expenses
It doesn’t matter how much you earn if you spend it all. So, try to cut back on expenses to boost the amount of money you can save and invest each month. You could save money on big expenses such as housing by downsizing to a smaller property or moving to a cheaper area. Or you could cut back on the amount you spend on shopping and eating out.
Personal finance advisor Suze Orman said, “Look everywhere you can to cut a little bit from your expenses. It will all add up to a meaningful sum.”