While the news and online articles spend a lot of time talking about good financial management, a lot of Americans prove pretty hit or miss about actually employing good financial management strategies. After all, the average consumer debt in the U.S. is over $90,000.
Financial gurus will also spend a lot of time talking about the latest financial management strategies. Yet, the new strategies are almost always just a fresh coat of paint on tried and true approaches to keeping your personal finances in order.
If you’re looking for sound financial strategies you can employ to get your debt under control and plan for the future, keep reading.
Make a Budget
This is probably the most foundational of all personal finance advice and for good reason. One of the biggest reasons people struggle financially is because they don’t have a good handle on their debts and expenses. They literally don’t know where their money goes from month to month.
You cannot make a budget until after you gather up and analyze all of those bills and expenses. Once you can see what bills and expenses you have, you can make some practical decisions about where and how you allocate your money.
For example, you can allocate money for fixed expenses, such as your lease and car loan. You can also make best guesses for things like utilities and credit card bills.
In terms of expenses, you can make some decisions there as well. For example, you can cut down on eating out to lower your food expenses. You can cancel subscriptions you don’t really use anymore.
Most importantly, you set money aside for important goals, such as retirement, travel, or taking a cooking class. The fresh coat of paint version of this is budgeting apps.
Embrace a Side Hustle
One of the bigger financial challenges for many people is that their job simply doesn’t provide enough income. They either struggle to meet their basic expenses or they don’t have anything left to set aside for goals, like home ownership.
Getting a side hustle is often a smart money move. Particularly if you can leverage your existing skills. For example, let’s say that you’re a junior copywriter in a marketing department. You can look for freelance copywriting gigs on the side.
People with writing and graphic design skills will often look for freelance work as well. You can also train for a side hustle by learning skills like photography or web development.
You don’t even need a lot of skills for some side hustles. You can walk dogs or do food delivery with a food delivery service.
Pay Down Debt
Debt is expensive in more than one way. It’s expensive in the sense that it sucks money away from your paycheck month after month. It’s also costly in that you pay interest on virtually all forms of consumer debt.
Paying down debt may not immediately free up money for other purposes, but it will help improve your credit score over time. That will help make future debt, such as a mortgage, less expensive by securing you better interest rates.
There are a couple of kinds of debt to which you should pay particular attention: credit card debt and back taxes. A credit card is the most expensive kind of debt that most people carry because it has the highest interest rates. Paying that down saves you a lot of money over time.
Back taxes will also accumulate over time at fairly steep interest rates. Just as importantly, the IRS will eventually look for ways to get that money, such as by placing a lien on your property or garnishing your wages.
If you’re not sure exactly how to deal with back taxes, you can services that offer back taxes help.
Set Goals
Sticking with a budget every single month can prove as tedious as a bad job if there’s no light at the end of the tunnel. People need something to work toward if they’re depriving themselves of other things. Budgets are, in some ways, a way of depriving yourself.
If you allocate money to savings, it means you can’t spend that money on something more immediate like a new video game console. Tolerating that situation proves easier if you know why you’re doing it.
That’s where setting financial goals comes into the picture. You really need three kinds of goals: short-term, middle-term, and long-term.
Short-term goals are things you set aside money for that you can expect to get within a few months. That console you want, for example, is something you can set aside a bit of money for each paycheck. It’s a kind of personal reward goal.
Paying down debt is often a medium-term goal that gets you results in a year or two. Things like taking six months off to travel the country or buying a home are often long-term goals. You must save for a while before you can make those a reality.
Start a Retirement Account
If your workplace offers you a retirement account option like a 401k, take advantage of it. Most workplaces will match a percentage of your contribution, which is free money for retirement.
If your workplace doesn’t offer you a retirement account, start one of your own. Not sure where to look for solutions? There is a good chance that whatever financial institution you do your banking with offers at least a couple of options, such as a Roth IRA or SIMPLE.
Financial Management Strategies and You
Many people don’t employ good financial management strategies, which leaves them in a poor position when it comes to big life goals. They find they can’t get a good interest rate on auto or home loans.
Worse still, a lot of people find themselves drowning in debt. Good financial management like budgeting, goal setting, starting a retirement account, and paying down debt help you take control of your financial situation.
Are you looking for more personal finance tips? Check out some of the other posts over in our Finance section.
