7 Ways to Manage your Personal Finances
Managing money is not as easy to some as it is to others. A good portion of Americans are actually terrible when it comes to finances and according to Experian, by 2019 consumer debt totaled to a whopping $14 trillion. In order to have a reasonable debt-to-income ration, it's important that you spend according to your means. This includes having your personal finances in order.
Here are a few things you can do in order to take control of your finances:
Create a Budget
In order to properly keep track of your money, creating a budget will help you breakdown expenses and understand your income. Budgeting also helps you better understand your financial situation, which is key in order to successfully manage your money. Understating your financial situation is what will help you pay off debt and start saving for future expenses like a car, a home, and your retirement.
Know your Expenses
There are plenty of people who don't actually know the total amount of their monthly expenses. In order to have a clear understanding of how much money you spend, start by keeping track of all your expenses for an entire month. Keep all your receipts of everything you've paid for that month and look at your bank statements. Cash and credit card expenses count as well. Add all that up and you'll have a better understanding of all the money you spend monthly. This will allow you to have a clear picture and know how to manage your money for the coming months.
Analyze your Income
In order to compare your debt-to-income ratio, you must subtract your monthly expenses to your monthly income. The results should be self explanatory. If your total is negative, that means you are spending beyond your means. You must reduce spending in order to create a healthy balance. If your results are positive, that means you're doing great managing your money and you can perhaps pay a little bit more of that credit card debt you have or increase your savings.
Cut Unnecessary Expenses
We all love to splurge and eat at our favorite restaurant, order our favorite coffee at Starbucks, and enjoy a good happy hour. Unfortunately, these are all extra expenses you shouldn't be wasting your money on if you're trying to gain control of your finances and lower your debt. Consider doing things at home instead of buying out or paying for it. If you pay for a gym membership (which chances are you don't go to regularly) try canceling that membership and working out at home. Think about all the subscriptions and memberships you have and cut an extra penny where you see possible.
Have an Emergency Fund
You never know when something serious is going to happen. An emergency fund is a fundamental tool for a healthy personal financial plan. Create this separate account for emergencies only. You shouldn't be taking any money out of this account unless it's an absolute emergency. Try to open an account which will generate interest so your money can grow while it sits. If you lose your job or an unexpected expense arises, you'll have those funds there as back up.
Use Finance Apps
Finances can be hard to understand. Thankfully, there are tons of apps that can actually do the budgeting for you and help you save money. Some of the most popular apps are Mint, Ibotta, Joy, and Chime. Don't be afraid to give them a try. They are designed to make it easier for you to understand your finances and gain control of your money.
Track your Credit Score
Your credit score is highly important for a lot of reasons. It'll help you qualify to buy a car, a house, rent a place, and get approved for loans or credit cards. Keeping track of your credit report will help you not only see your current credit score but also find areas where you can improve to raise your score. The easiest way to improve your credit score is through your credit cards. Keep your balances low and work towards paying that balance as fast as you can instead of opening new accounts or doing balance transfers. This will show how creditworthy you are if you show that you are able to pay off your balance in a timely manner.