10 Simple Pieces of Financial Advice to Live By
Managing finances for the average person is never a pleasant task. Paying bills, balancing checkbooks, working with budgets can all be taxing, stressful and unpleasant. With these ten pieces of financial advice, you can take some of the stress out of your financial management and could put you on track to a more stable financial future.
Track Spending Monthly
Have you ever actually looked at what you spend your money on each month? The average person has no idea what they spend on food, entertainment, clothing or gasoline.
No matter how you pay for your purchases, whether it is with debit cards, cash or credit, total each spending category at the end of each month to get an idea of where your money goes each month.
Budgets are Critical
After you have tracked your expenses for three months, sit down with paper and pencil or spreadsheet software and create a budget. Divide your total income over the past three months by three to get a monthly average.
Don’t include overtime or bonuses in the income for your budget. Do the same for every category of expense. If you see areas where you can cut back such as your daily iced coffee or lunch out each day, adjust the balances to an amount you are comfortable with. Compare what you actually spend with what you have budgeted at the end of the month.
Too often, we forget that savings is as important as other bills. You need to have an emergency fund for unexpected expenses. If possible, include at least ten percent of your salary in your budget for savings. Put any overtime or bonuses in your savings account as well rather than using it for regular expenses.
Pay Bills On Time
Set reminders when bills are due each month to avoid paying them late. Paying bills late can result in unnecessary late fees and it can also damage your credit score. Low credit scores can cost you thousands in interest on auto loans or mortgages. If possible, set up automatic online payments so bills are paid directly from your checking account each month.
Check Your Credit Report
Federal law allows you to receive one free credit report each year at no charge. Review your credit report annually to be sure that there is no incorrect information that could be affecting your credit score.
Know Your Score
A free credit report does not usually include your credit score, but you can obtain your score by paying a small fee when you order your report. Scores range between a low of 500 to a high of 850. The higher your score, the lower your interest rates. Some banks and credit card agencies offer to provide your score as well.
Eliminate Credit Card Debt
If you are only able to pay the minimum payments on your credit cards, you may be living above your means. Stop using credit cards and begin paying off the balances.
One method for paying off credit card debt is known as the snowball method. List your credit cards, their balances, the monthly payment and the interest rate. Determine how much extra you can pay on the cards each month. Start with the card with the highest interest rate and pay the minimum balance plus any extra you have available. Pay the minimum balance on all other cards.
When the first card is paid in full, move to the card with the next highest interest rate. Pay the minimum balance you have been paying on that card, the extra you have available as well as the minimum balance you were paying on the first card. Continue this process until all your credit cards are paid in full.
Free Money is the Best
If your employer offers to match what you contribute into a retirement account, take advantage of the offer.
Maximizing your contributions lowers your taxes and helps you build a retirement nest egg over a long period. In most cases, you won’t even miss the small amount you are putting into your retirement account.
Review Your Insurance
Insurance premiums can be one of the highest expenses you have in your budget, but it is a necessary expense. Talk to your insurance agent about ways you can lower your insurance expense without cutting coverage.
Choose Legitimate Financial Institutions
Open a checking or savings account at an FDIC-insured bank, credit union or savings and loan. Research each institution before choosing one to be sure the one you use offers the best rates and lowest fees available for your needs.
This financial advice can help you get a better grip on your finances and help guide you down the path of financial freedom. Most of them can be completed without any hardship and you may discover that you actually enjoy managing your finances when you see the money you could save.