Saving money is a skill that Americans can improve upon today. Half of Americans did not set money aside for retirement and no more than a few hundred dollars are in the savings accounts of 35 percent of American adults.
Less than 20 percent of American have more than $10,000 saved up as an emergency fund.
Learning about the fundamentals of personal finance can keep adults from falling into financial traps. Personal finance is an umbrella term and revolves around several topics such as:
- Bank accounts
- Insurance of any kind
- Types of debt
- Types of investment
However, personal finance does not only include financial resources. It also encompasses habits, behaviors and strategies surrounding personal finance. Long-term and short-term financial goals are also included within personal finance.
Setting Personal Finance Goals
An individual must maintain a clear goal in order to make solid financial decisions and conducting financial practices. An important part of personal finance is setting financial goals and making consistent yet wise economic decisions. In order to get individuals in the right mindset, experts have some key questions for people to ask themselves to set financial goals.
- Do I have an emergency fund?
- Do I have any sort of debt such as credit card and student loan?
- Do I have a retirement plan?
- Do I want to make any large purchases, like a house, in the future?
This list, while not as thorough, could prove useful for anybody starting to examine their personal finance habits and goals. This guide can help beginners with finding their priorities and where they can benefit in terms of initial to long-term financial investments. Essentially, this list can underline any ongoing issues or opportunities regarding the financial decisions of an individual or a family. A typical example of a key opportunity for families can include early investing opportunities that can support the dream of buying a house or constructing a good retirement income. Ongoing issues, for instance, can include but are not limited to:
- Being unable to consistently pay for a credit card balance.
- Being unable to consistently pay for loans on time
- Frequent unexpected vehicle maintenance costs.
Budgeting for Meeting Financial Goals
Although financial advisors and experts have encouraged budgeting in the past, there remains less than a third of American households who follow any sort of monthly or yearly budget. Despite the reason why the other two-third of Americans do not participate in budgeting, this skill can become a vital tool in households for personal finance. A well-constructed budget gives the freedom for individuals and households to:
- Get a clear perspective on where their money is going and where it is coming from.
- Find errors or misconceptions they have had about their finances or habits.
- Make sure their money is going to things that matter to them on a consistent basis and it is being consistently wasted.
- Recognize the opportunities that can improve their financial behaviors, their investments and provide tools for them to use.
- Keep track of progress and celebrate financial milestones, both on the short term or long term.
Luckily, we live in a digital age that provide advanced tools for easier budgeting. Phone applications, some free to use, let people incorporate their banking and credit card records with their budget spreadsheet. Some of these mobile applications even offer live updates of their banking records to notify them of account activity. Some applications offer different reports along with tracking and reporting tools to help users in comprehending and adjusting their progress.
Making Good Money Habits
There are great methods to managing money, besides budgeting, that are effective enough to promote strong yet minimal stress personal finance practices. Some adults were taught effective personal finance practices when they were young and were raised with role models who showed them how, but this is not the case for every adult. Some must learn from scratch and to implement these habits into adulthood, after making financial mistakes that have led them to start considering their money habits. Here are some financial practices that are valuable and good for beginners.
Maintain a Rainy Day Fund
Life tends to come unexpectedly, so of course there will emergencies that will affect our wallets. Medical emergencies or financial crises such as unanticipated job loss or natural disasters are just a few examples. Because of these uncontrollable life events, it is important to have a healthy emergency fund. A rainy day fund can insulate a current budget and these unexpected events, even when you least expect it. The amount of money a household should have will vary, but it is typical to save up to three months’ worth of expenses.
Plan and Adapt for the Future
When someone is young, it can be easy for him or her to let the idea of life insurance, retirement funds, wills and trusts slip the mind of that person. These long-term payments might seem like nothing in the moment, but if they are not paid attention to, they can become a missed opportunity. They can create a huge impact on the long-term financial health of a household. Because of this, it is vital for families update these investment tools as their priorities change over time.
Leverage Tax Opportunities
Household that are aware and taking advantage of tax break opportunities will benefit financially in the long run. When your household is doing their financial planning and tracking, consider tax laws and any credits your household qualifies for. They may seem like small opportunities at first, but they serve as long-term benefits.
Minimize Your Debt
Financial experts seem to come to similar consensus that paying off debt must be a priority for individuals and households to get a handle on their personal finances. High interest rates on debt can impede upon long-term financial goals and drain the budget of an individual or household.
Use Debt Wisely
Certain types of debt, when used properly, can be beneficial for a household. A mortgage, for instance, can secure and functional for a household. If the mortgage does not get in the way of the household income and priorities, then this type of debt is not an issue.
Avoid Credit Scores
Making payments on time and having low or reasonable amounts of debt relative to the income of your household are how you can maintain a high credit score. Review your credit score regularly, even if you and your household do these things, to ensure there are no errors.