Credit: Shutterstock photoBy Douglas A. Boneparth, CFP®, AIF®, MBA
Keeping your financial life in shape takes time and planning, but there are some ideas and rules anyone can follow to help ensure that they are on the right track. Here are three personal finance basics everyone should follow to ensure their finances are in order:
Identify, Quantify and Prioritize Your Goals
Setting goals is essential to your financial plan. Start by having an honest conversation with yourself. What great things in life do you want? Identify those goals, then quantify and prioritize them. Be realistic and specific about what you want. It's important to be aware of your goals so you can plan your finances around what you are working towards.
Master Cash Flow
Cash flow is the foundation to every other area of personal finance. You can't know how much you can save without knowing what your budget looks like. You can try, but eventually something won’t work out quite the way you thought.
Figure out how much money is coming in versus how much is going out. There are plenty of online tools to help with this, like Mint and Quicken, or use a good, old-fashioned Excel spreadsheet. It doesn’t matter what you use, just spend the time to understand your budget and get a handle on cash flow. (For related reading, see: 6 Budget Must-Haves.)
Save More
If you have a handle on your goals and cash flow, you should know what you can save each month towards those goals. However, saving the amount you want may be easier said than done. Here are some creative ways you can work towards saving more for your goals:
- Make a game out of savings. Set a time period of six months and see how each family member can save. The winner gets to pick a reward such as deciding where the next family vacation should be.
- Automate your savings. Have money move from checking to savings automatically.
- Save at the beginning of the month. It’s easy to say “Let’s save at the end of the month,” but life gets in the way. Automate your 401(k) or IRA contributions for the beginning of the month so they happen automatically. Then the money is already put away and you can’t spend it.
- Every time you get a raise, save half of it. Be aware of expenses rising as your income rises. This is called lifestyle creep. Don’t get in the mindset of increasing your expenditures with each raise. If you do, you will struggle to get ahead. Instead, try to keep expenses the same and put the extra money towards savings.
- Create a side hustle. Developing a way to bring in income outside of your regular job can be valuable. In today’s economy, there are lots of ways to bring in extra money. Get creative and find a way to monetize something you enjoy doing. (For related reading, see: 3 Freelance Gigs to Help You Earn More.)
- Pack a lunch for work. Bringing your food instead of buying it can save a large amount over the course of the year.
- Delete the retirement and investment apps from your phone. You may feel like you need to constantly check your accounts, but if that money is for retirement, it is for the long term. Seeing the day-to-day changes may make you more susceptible to making emotional decisions based on what’s going on in the news cycle. And very rarely does anything good ever come from that roller coaster!
- Be cognizant of fees. Understand what you pay for your investments. Knowledge is power.
These basic ideas can be a great start for anyone looking to get their personal finances in order. It's important to be aware of your income, expenses and savings to guarantee your money is being used properly.
(For more from this author, see: Personal Finance Basics for Millennials.)
This article was originally published on Investopedia.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
