Personal finance, or the concept of saving and investing money, can have tremendous benefits for your life. If you are consistently stressed about your finances, adopting simple and effective personal finance strategies will take your worries away. Personal finance habits will help you achieve your short-term financial goals, all while allowing you to pay off your debt and build financial security for retirement, emergencies, and travel! The world of finance may feel foreign but with these easy strategies, you’ll become an expert in your personal finances.

Determine Your Goals

Whatever you’re wanting, you can acquire. In fact, people with financial goals are more likely to consistently save money and effectively manage it. This helps them achieve what they desire, without breaking the bank! Determine what it is you want to purchase in the short and long term. With this in mind, you’ll be able to develop a realistic personal finance plan that works for you.

Create a Budget

To create a budget, you’ll want to have a realistic understanding of how much money you’re making each month, and how much you’re spending. Start by calculating your weekly expenses, monthly expenses, and a rough estimate of how much money you spend on entertainment, food, and other expenses each month. By doing this, you’ll be able to see what portion of your income is being spent. It is best to have a 50/30/20 management. This means that 50% of your income goes to fixed charges like your rent, car payment, utilities, groceries, and transportation. This leaves you with a remaining 50% of your income each month. It is up to you to decide how much you want to allocate to savings, but choose an amount or portion of your income that is sustainable so that you can consistently set that amount aside. Saving 20% of your income for the future can be used to save for a house, pay off debt, or even a trip. The remaining 30% of your income can be spent on optional expenses that will probably differ from month to month. For example, maybe one month you spend a portion of it on a trip, while the next month you’re dining out more often and use it for that. Overall, create a budget that is sustainable for you. 

Minimize Debt

If you want to plan for the future, it is best to get rid of charges and debt that are holding you back. Medical debt, expenses for dentists and orthodontics, student debt, and more can all rack up. You may want to set aside a portion of your income in the first step to paying off any outstanding credit card charges and medical bills. It is also smart to cut costs where you can. In the second step, creating your budget helped you get a clear picture of where your money is going. If you find that you’re spending too much in one area, minimize this over time by working with your budget and adjusting accordingly. You don’t want to spend more than you earn, as this will create a negative impact on your finances. Determine what economically makes sense for you and stick to it. The budget from the first step is a good guideline to help keep you accountable, but it is also a good idea to be practical with your finances and understand how you can optimize them. 

Build Credit

Building a solid credit score is beneficial for many reasons. First of all, it shows to lenders how responsible you are with your finances and can help you make large purchases. The FICO credit score is a three-digit number that is used to determine how likely it is you are to repay a loan. This number is used to approve you for loans, mortgages, and credit cards. It is basically a numerical representation of your creditworthiness. There are many different things that can affect your credit score. Some things that impact this number include your payment history (35%), debt (30%), length of credit history (15%), credit mix (10%), and new credit (10%).

Those with the best credit scores have a diverse credit portfolio. By maintaining different accounts, you illustrate your ability to manage money effectively. Therefore, start building your credit score by making payments on time, asking for higher credit card limits, and using a secured credit card. Having a good credit score will help you take out a loan for a car or home in the future, so be strategic about building your credit to reduce discrepancies in the future.

Invest

Investing your money may seem scary, but is one of the best ways to increase your net worth in the long run. The main reason you want to invest is that it has the potential to grow your wealth and build on pre-tax dollars. Different types of investments include mutual funds, 401(k)s and retirement plans, stocks, and cryptocurrency. Cryptocurrency, which has been on the rise since early 2010, is a digital currency that allows you to exchange real currency virtually, without banks verifying transactions. Okcoin is a great platform to exchange and track your assets at your fingertips! To start investing, check with your employer to see what kind of retirement plans they offer. Many companies will match your contribution to a 401(k) which is a great incentive to put money aside. Even if you start small, dipping your toes in investments can have tremendous long-term benefits for your finances. 

Taxes

Another crucial aspect of your personal finances is taxes. If you’ve been planning and budgeting your finances effectively, this can make tax season a lot easier. Taxes are mandatory payments used to fund the community as a whole. They are made by individuals and corporations for federal and state governments. Tax season comes around once a year and is the time to examine your finances from the previous year. Taxes can be extremely complicated, but there are many deductions and credits that may be applicable to you. Save your receipts and take advantage of deductions where necessary. This can help you save money and reduce the amount of taxes you owe. 

Indulge Cleverly

Millennials are known for indulging in experiences rather than things and tend to put more money towards outdoor dining than their retirement funds. Millennial spending habits are good to keep in mind because things like student loans and high rent prices, and the need for good credit, all can make personal finances seem hopeless. While it is important to contribute to retirement, pay off debt, and stick to a monthly budget, it is also important to allow yourself to indulge as well. Once you’re in a good financial spot, indulging shouldn’t bring upon guilt. In fact, it is completely acceptable to factor in indulgences like a new pair of shoes or a weekend getaway into your life. By creating a strong financial foundation, you’ll realize that saving money is easier than you think! Focus on your values and what is important to you so that you can allocate your money wisely.

Personal finance is an ongoing process that will adjust just like interest rates, income, and the price of goods and services fluctuate. Maintaining a structured financial plan and gaining a better understanding of where you want your money to go in the short and long term can guide you to financial freedom. Instead of neglecting your financial goals, plan for them with these personal finance strategies and learn more. Some great books on personal finance are Think and Grow Rich by Napoleon Hill, Rich Dad Poor Dad by Robert Kiyosaki and Sharon Lechter, and Your Money or Your Life by Vicki Robin and Joe Dominguez. Anyone can gain a better understanding of their financial situation and use effective strategies to optimize their situation!