At some point in our lives, we’re going to have to start managing our own personal finances. As daunting as that prospect sounds, it is completely doable. It takes commitment, honesty, and understanding to build your financial literacy and manage your money. But don’t you fret, you’ll be able to reach your financial goals eventually. Here are 5 tips to help you out in your financial journey.
1. Create Clear Goals
Financial goals are objectives or milestones that you want your money to achieve at a specific time. Whether it’s building an emergency fund, getting rid of debt, or going on a luxurious vacation, your financial goal needs to be clear.
Some short-term goals can include saving up to buy a car, planning a wedding, or building an emergency fund. Keep in mind, short term goals should be achieved in 12 to 24 months.
Mid-term goals should be around 3 to 5 years long. Some may include saving for a downpayment on your house, paying off a hefty student loan, or starting a business.
Lastly, long-term goals should have a timeframe of 5+ years. These goals can range from saving for a child’s college education, saving for retirement, to paying off a mortgage.
2. Make A Budget
“A budget is telling your money where to go instead of wondering where it went,” said Dave Ramsey, an American personal finance personality.
Budgeting helps you control your spending, track your expenses, manage your money, and save money. It helps you make better financial decisions, prepare for emergencies, get out of debt, and stay focused on your financial goals.
At the beginning of every month, take a day to create your budget. You can try different budgeting methods such as the 50/30/20 split or the 70/20/10 split. You can read our other articles for more information.
3. Select a Money Day
“Pick a day of the week that you can commit to and make that your Money Day every single week. Touching your bills and paying your bills every single week allows you to get very clear on what you’re spending,” suggests Barlin, CPA, financial expert, and founder and CEO of About Profit.
The only way to improve your finances is if you take stock of your current financial situation. Be brutally honest with yourself and record all of your spendings. Afterward, you can take note of where you can save.
4. Make Separate Bank Accounts
Barlin says, “For most of us, we earn money and it lands in a bank account. From that bank account, we spend. We pay our bills. We spend money on the fun stuff. It’s all lumped into this one checking account so when we look at our account, if we have a lot of money in there, we tend to spend more, if we have less, we tend to spend less… Set up different bank accounts and use each bank account for a separate purpose… Once the money is designated for certain expenses, then either you have the money, or you don’t.”
The right bank accounts are critical to your financial success. You’ll need to set up checking, saving, and investment accounts because these are the building blocks of financial success. The reason you open a checking and a savings account are so that you can easily separate your spending cash from long-term savings. Leaving your savings in your checking account makes it easy to spend all of your hard-earned savings.
5. Start Investing
Investing is one of the most effective ways to put your money to work and potentially build your wealth. The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff. Whether you invest in stocks, bonds, mutual funds, real estate, small business, options, futures, precious metals, or a combination of all of the above, the objective is all the same. You want to make a profit.
If you are a beginner, some investing applications you can use are Public.com, Robinhood, SoFi, Stash, and Betterment.