Seven Useful Personal Finance Tips

Managing personal finances is often challenging, especially since money can be a scary topic for many people. There are many pieces of advice available on how to improve an individual’s financial picture, and some of these tips are better than others. Here are the seven most useful tips for personal finance.

Put Savings First

Many people make the mistake of saving what they have left at the end of the month. For too many though, this number is zero. In order to make progress towards goals, savings needs to come first and should be done automatically. Banks, investment companies, and 401(k) plans all have automatic savings plans and are easy to enrol in. By making this decision once, a person can guarantee that savings actually happens every month.

Have an Emergency Fund

One of the first things that savings should go towards is building up an emergency fund. By keeping three to six months worth of expenses in a safe account, like a savings account or money market fund, money is available if something unexpected happens. Many people get into financial hardship due to unexpected problems, like a major car repair, illness, or job loss. Having money set aside ahead of time to deal with these inevitable issues will help soften the blow and keep people out of debt. Many people think of their credit card as their emergency fund, but this strategy is less than optimal since the credit card will charge very high interest rates, leaving people in a worse situation than before.

Use Credit Cards for Gas Only

Credit cards are often a source of debt that gets people into financial trouble. Studies have also shown that people spend more money than they otherwise would if they pay with a credit card relative to cash. On the other hand, using credit cards responsibly builds credit history and improves credit scores. By using credit cards to pay for gasoline and nothing else, people will be able to get the benefits of using credit but without the risks of overspending. No one is going to buy more gasoline than needed, especially since the size of the gas tank limits how much can be purchased at once.

In the event that people do not have the willpower to only use a credit card for one type of purchase, a good tip is to take the card out of wallets and purses entirely. This will force people to really think about using the card and can help limit credit use to true emergencies only.

Wait a Week

Another way to keep spending under control is to wait a week before buying anything. Many people make the mistake of buying something on impulse, rather than truly deciding if they actually need it. Once a decision is made to buy something, decide to buy it in one week. Once that week passes, if the person still wants the item, it is ok to buy it. Often though, the person will discover that the potential purchase is wasteful and not desired any more. A waiting period also provides time to research a potential purchase and perhaps find ways to get it cheaper.

Keep Track of Spending

Another financial mistake that people make is underestimating how much money they spend. Using budgeting software or expense-tracking websites can be tedious but can also be an incredible source of information. On a smaller scale, keeping track of every expense over the course of just one month will provide a lot of insight into where money goes.

By keeping track of spending, people can determine if they spend more than they make. They can also see if there are places that they waste money or are spending more than they thought they would be. Tracking spending will help identify the small but frequent purchases that add up to significant amounts of money over time and also the larger expenses that tend to take a big chunk out of a budget.

Buy a Smaller Car

Many people who want to get in control of their personal finances think that the easiest solution is to cut out small purchases, like the daily cup of coffee. While these small adjustments are certainly valuable, they are also small and hard to maintain. In order to cut out the daily cup of coffee a person has to make a decision every single day to forego that expense. For people who have a large amount of debt that they are trying to pay down or a big imbalance in their spending relative to their income, a more dramatic change can be warranted. Buying a smaller car has many financial benefits. First, the cost of the car is lower, saving thousands of dollars in one decision. That money can make a sizeable dent in other goals. Secondly, the ongoing costs of the car are lower. Smaller cars generally get better fuel economy, saving money on gasoline. Maintenance expenses are also generally lower.

Readjust the Thermostat

Energy usage is a major expense for most households. It is also one that can occur without people paying attention to it. By adjusting the thermostat slightly, people can save significant amounts of money. Programmable thermostats are especially attractive money-saving devices. Many people waste potentially hundreds of dollars a month heating and cooling their homes when no one is home. Programmable thermostats allow users to determine ahead of time what their heating and cooling schedules will be.

Conclusion

No one personal finance tip is appropriate for all people. Perhaps the best idea is to care about finances and always be looking for ways to improve. No one tip is going to solve all problems, but gradual improvement over time can have meaningful results.

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