Struggling to make ends meet? Have you thought about changing your financial habits? Read on to learn all about personal finance basics.
Are you struggling to make ends meet? If so, you’re not alone. Nearly 80% of Americans barely make enough to make ends meet.
But don’t worry. By developing a few important habits, you can get out of the rut and live the life you want. It’s just a matter of getting back to the basics when it comes to your finances.
What financial changes are necessary to break the paycheck-to-paycheck cycle?
Read on as we reveal the three most important personal finance basics to can lead to financial stability and prosperity.
Evaluate Your Spending and Look for Areas to Save
Saving and budgeting may not sound exciting, especially when all you really want to do is travel to the Netherlands and eat at the best restaurant in Amsterdam.
But before you can even create a budget, you need to know where every dollar you spend is going.
We recommend using a tool like Mint replace which can import and categorize all your bank transactions. Import your records for the past six months and look for areas you can save. For example, you might cut monthly subscriptions you don’t use or value, such as streaming services or a gym membership.
With your monthly bills, a few changes can go a long way to save money. Review your cellphone and cable plans and see if you really need the options you are paying for. You may be able to save money without even noticing any difference in your service.
The same goes for your auto insurance. Insurance rates change very often so if you’ve been with the same carrier for a while, chances are you’re paying too much.
Call your agent and see if they can lower your bill. Get quotes from other companies as well. Sometime’s a quick phone call can save you hundreds of dollars a year.
Create a Budget
Now that you know where your money is going, it’s time to create a plan that will lead you toward becoming debt free with savings in the bank.
Before you pay a bill, pay yourself first by putting some away in your savings account. It’s the best way to start saving money.
Start small if you need to, even if it’s $5 a week. Set a goal to eventually save 10% of your post-tax income as your finances improve. The point is to make saving a priority and get started.
Budgeting doesn’t have to be hard. Do a Google search for a “free budgeting spreadsheet” and choose one that works for you. Fill it out as accurately as you can.
When it comes to your income, enter the baseline amount you know you will receive. Enter that number into your spreadsheet so you know how much money you will have each month. Any extra money you earn can be used towards paying off debts.
Set goals for savings and debt reduction and set your spending limits accordingly.
Record your spending and be consistent. Don’t let minor slip-ups take you off your plan completely.
Earn Extra Money
The formula for accumulating wealth is pretty simple. Earn more than you need to live, and consistently save and invest the difference. The previous steps above concentrated on saving money and budgeting for extra room in your monthly finances.
But nothing can improve your financial picture as quickly as an influx of extra money to your budget. To that end, look for ways to make money on the side you would enjoy doing.
The gig economy provides plenty of opportunities, such as being a ride-share driver or a dog walker. You can also look for a part-time job doing something you enjoy.
Take the extra income and save it until you are saving the benchmark of 10% of your income. Any remaining income can then be used to invest. If you need advice on where to invest your money, we recommend the Ellevest robo-advisor.
The Final Word on Personal Finance Basics
When you’re struggling to make ends meet, getting back to personal finance basics may not sound that fun. But a little sacrifice now can set you up for better circumstances down the road.
In other words, save and be fiscally responsible going forward and you’ll build the financial security you need to live as you wish.
Then shopping in Amsterdam and eating at that fine restaurant can be a reality — and within your budget.