So, what is the best personal finance advice? Below are 10 personal finance tips that should be followed by all:
- Start early – If you start saving money early, you’ll have more time to save, to participate in the stock market, and to let your returns compound. If you’ve put off saving, start now. No matter how old or young you are, the soonest you can start saving is right now.
- Track your spending – Keep record of where your money goes every month. You will find areas where you are probably spending too much money. Eating out, for example, is a common expense most people can easily reduce. By tracking your expenses, you will be able to cut spending in areas and, therefore, save more money for future goals.
- Pay yourself first – Putting money into savings or into a retirement account at the beginning of the month does two things. One, you are saving right away so you don’t have any excuses as to why you didn’t save any money during the month. And two, because you saved first, you probably have less money to waste on frivolous purchases.
- Budget – Establishing and sticking to a budget is an important step to make. List all of your necessary spending, like rent, utilities, insurance, etc. Then, list the amount you save for emergencies, short term goals, and retirement. After those items are listed, you can calculate your discretionary spending. This is fun money. Limit yourself to a set amount and then save whatever is left over.
- Save for emergencies – If you have a savings account, keep adding to it, but if don’t have anything, start saving. Add a little bit each month. To make it easy, set up an automatic transfer from checking to savings. Experts say to save 3 to 6 months’ worth of living expenses in an emergency fund. This summer my water heater went and it needed replacing. I dug into money I saved for such an occasion, and my normal finances didn’t miss a beat. In a few months, the money used to replace the water heater will be back in savings.
- Live below your means – This means spending less than you make. Sometimes living in less expensive place than you can afford makes sense and even provides you with more happiness. Don’t use credit to furnish your apartment if you don’t have the money to pay for it. Acquire the items that you need and spend money on experiences, rather than things.
- Maximize your retirement savings – If you are participating in an employer based plan, contributing to an IRA or both, make sure you are saving as much as you can. Max out your contributions. If money is tight, save as much as you can. Use some of the tips above to find extra money so you can contribute more. If you do have an employer plan, make sure you at least contribute enough to get the company match (if they offer one). Missing on a match is essentially losing out on free money.
- Be selective with debt – At some point, you will need to use debt to establish and increase your credit score. If you can’t trust yourself, then get a secured credit card. If you use a standard credit card, make sure you are paying it off every month so you are not paying interest. More than likely, you will use debt to buy a home by means of a mortgage. Put down as much as you’re able to, but try to put down at least 20%. This will allow you to avoid paying private mortgage insurance (PMI) and will save yourself some money.
- Obtain and maintain proper insurance coverage – To limit the effect of disasters and catastrophic losses, make sure you have appropriate insurance coverage. That doesn’t mean go out and by the cheapest insurance you can find or go buy the most expensive insurance. Fall somewhere in the middle. You want to find the best coverage for the amount you pay. The most bang for your buck. Cover yourself from losses. Don’t necessarily cheap out, but don’t break the bank either. A personal insurance agent would be a good resource for this.
- Track your net worth – Keeping track of your net worth will keep you honest. If you have student loans or credit card debt and have minimal savings and assets, you are going to have a negative net worth. Chipping away at the debt and saving money will decrease that negative amount. Eventually the number will turn positive, and you can then continue to grow it. Always having that reminder of how your big financial picture looks will change the way you think about money, and it will keep you motivated to continue improving your number.
As I said, there are various pieces of advice out there to help you with your finances, but I find that your financial situation can boil down to a couple of key points. Limit your spending, keep an eye on your debt, and save as much as you can. Doing these and incorporating other helpful tips along the way should give you a good start on your financial journey.
As always, with regard to your personal situation, please consult a financial professional. The opinion provided in this article is that of the author, and should not be taken as personal financial advice.
Have a piece of advice you’d like to add to the list? Let us know!