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5 Tips to Begin Effectively Managing Your Finances


While most of us want to achieve some form of financial security, that same majority agrees that traditional education in our public schools does not properly equip us with the knowledge and resources necessary to be make effective day to day financial decisions. Those skills must be learned on your own, often with mistakes made along the way. There seems to be a growing gap between financial literacy and our population, causing many people to lose hope and get trapped in a deeper hole of debt. However, when it comes to money, here are five ways you can more effectively manage your finances so you remain in control of your spending habits.

Tip #1: Automate Your Savings

It can be difficult to set aside money every month, especially after you’ve been anxiously awaiting to get your paycheck. If you’re struggling to put money away, set up an automatic transfer from your checking account to your savings account each month to make sure that you’re continuously growing your nest egg. Set the transfer up to occur on the day(s) your paycheck hits your bank account, so you will be less likely to notice the reduced cash in your checking account. Whether you want to be prepared for any emergencies that may come up or have a dream of buying a house one day, adding money to your savings account every month — even if it’s only $100 — can get you closer to the financial stability you need to feel confident about your future.

Tip #2: Resist Impulse Purchases

With so many products out there — ranging from new gadgets to the latest must-have accessories — it can be difficult to put a cap on your spending habits. Instead of putting yourself right in front of your guilty pleasures, consider putting your money towards experiences, rather than material items. If your favorite past-time is going to the mall, swap window shopping with a picnic out in the park or a day out at your local museum. While retail therapy may seem like the solution to your problems, oftentimes, you end up feeling worse than if you had spent your time making memories instead. At the very least try implementing a personal policy of waiting 48 hours before making that impulse purchase. What you will often find is that something you had to have in that moment doesn't stir the same need to have it just a couple of days later.

Tip #3: Never Pay Interest

Paying interest is like giving away your hard earned money for nothing and should be avoided whenever possible. Especially troubling is credit card interest because rates on credit cards are typically 17%-23%. Even "low-interest" credit cards are in the 10%-14% range. Using a credit card is fine and often encouraged, but be sure to pay the full balance every month, and only buy what you can afford. Otherwise you can easily get caught in a downward spiral of compound interest that detracts from your savings potential. Other types of loans, such as home equity and car loans, typically have lower interest rates than credit cards. While it's better to pay a low interest rate than a higher one, interest is still money that you would otherwise not have to pay. Exercise good judgment when using any type of loan and paying interest. The one exception to never paying interest is when it comes to your mortgage. Most people don't have the cash available to pay the full purchase price of their home, so that's where mortgages come in. Just be sure to put down at least 20% of the purchase price as a down payment. Otherwise you will be considered a higher-risk borrower and be charged Private Mortgage Insurance (PMI) - an additional unnecessary expense.

Tip #4: Focus on What You Can Control

While it’s difficult to effectively plan ahead for every single expense we’re going to have, you can at least have an initial game plan for where your money is going. Generally, every month, you know you’re going to have a rent or mortgage payment, buy groceries, pay other utility bills, and fill up on gas a few times. Subtract all of these expenses from your monthly after-tax paycheck amount. This will give you a rough idea of how much discretionary money you have each month. If you plan to put some money into savings or investment accounts (and you should be), you’ll want to make a note of that too. The purpose of this exercise is to make yourself more mindful of the money you’re spending each month and where it's going. When you know certain specific expenses are going to come up, you can start planning ahead to make sure you’re not spending more money than you have and that the money you are spending is being spent appropriately.

Tip #5: Be More Goal-Oriented

For some people the thought of  goal setting can be intimidating because it means there is a chance they might fail. However, if you never set goals for yourself, you will never have complete control over your financial life. To get started begin with a realistic goal that can ideally be achieved in less than five years, such as paying off your credit card debt or student loans. Once you’ve identified what you want to accomplish, write it down. Oftentimes, the simple act of writing down your goal can make it feel more real and make you feel more accountable.

Next, create a rough timetable of how you are going to achieve your objectives. This timetable could include information such as how much money you’re going to save every month, as well as milestones for each payment you’re going to make. Over time, you’ll begin to gain more confidence about your finances, in turn leaving you feeling more in control and capable of managing your money on your own. If you're not sure what goals to set for yourself or what would be realistic goals, have a talk with a financial planner. Helping you define realistic goals for your personal situation is one of the key benefits of working with a financial planning professional.

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This content is developed from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.