Getting ahead financially in today’s tough economic times may seem challenging. With a few minor updates and adjustments to your spending and saving habits, you can build a nice nest egg to protect you during fluctuating economic times. Here are a few personal finance tips and tricks to help you get ahead in any economy.
The first step in improving your personal finances is to track your spending. You can’t set realistic financial goals without first identifying areas of improvement. At the end of each month, categorize your spending and add each area up to better understand where your money is going.
You might include a few categories: dining out, groceries, gas, rent or mortgage, utilities, travel, or entertainment. There are many apps available today that help with budgeting and financial tracking.
Set Savings Goals
Once you have an idea of your spending habits, it’s time to set some goals. Create an ideal household budget that includes your expected income and the maximum you’d like to spend in each category for each month. SMART goals are best for personal finance, which means setting specific, measurable, achievable, relevant, and timely goals.
If you find it difficult to allocate a certain amount each month to each category because of fluctuating income, consider dividing your paychecks by a percentage. You’ll have more to allocate to each category in the months you earn more. Don’t forget to allocate a percentage for savings too.
Create an Emergency Fund
Creating an emergency fund should be one of your categories. Ideally, experts recommend saving at least three to six months of living expenses in an emergency fund. If six months isn’t practical for you right now, try to save as much as possible.
This fund helps you manage unexpected situations, like unemployment or an inability to work. An emergency fund can also help you cover a flat tire or broken washer or dryer. Exploring emergency funding options before you need them can also be helpful. Otherwise, you’ll end up choosing the first cash advance option you come across, which could result in expensive fees. Instead, an online banking company offering no-interest bank cash advances is a better option when you need access to last-minute cash.
Pay Yourself First
Many people make the mistake of paying their bills and then spending whatever’s left. Instead, try to get in the habit of paying yourself first. Treat your emergency or savings funds as a bill. Redirect the money to the account you set up as soon as you get your paycheck so you won’t be tempted to spend it.
Conduct Routine Finance Audits
The most successful businesses conduct routine finance audits. Getting into the habit of conducting regular financial audits on your personal finances can also be beneficial. This ensures that you always understand where your money is going and if there are any areas in which you can improve. Scheduling regular financial audits also encourages you to reevaluate your financial goals and determine how well you’re progressing toward them. Additionally, you may find that your financial goals change over time.
We recommend scheduling financial audits of your personal accounts at least once every quarter or three months. When you’re first learning how to budget and track spending, you may even find it more beneficial to review these expenses each month.
Pay Down Debt Based on Interest Rates
Paying down debt should be one of your first financial goals. Debt affects your credit and leaves you with less money to accomplish other financial goals. Creating a repayment plan can help make large amounts of debt more tolerable. Start with the debt with the highest interest rates. Pay these off as quickly as possible, and then redirect any leftover funds to the next-highest interest rate until your debt is paid off. In the meantime, avoid the temptation of taking out additional debt.
Understand Your Credit Worthiness
A good credit score isn’t just a necessity for qualifying for credit. Many lenders calculate the interest rates you pay based on your credit score. You may even be surprised to learn that some insurance companies factor credit scores into your premiums. Even if you don’t plan to take out a loan in the future, working on your credit score can offer many advantages.
You can request a free copy of your credit score once per year from the three major reporting bureaus. Try to get in the habit of checking each one at least once per year. Make sure all the information in your report is accurate, and dispute any inaccurate details.
Becoming more financially secure may seem impossible during times of high inflation and interest rates. Yet, a few small steps, such as setting up an emergency fund and paying down debt in small steps, can help you better prepare for fluctuating economies. These strategies also free up more money, which can put you in a better financial position.