Nobody said life was going to be easy. From family drama to financial strife, it’s a rollercoaster, to say the least.
The good news is that even if you were never taught the basics of personal finance, managing your money needn’t be complicated. It all boils down to understanding a few key points, so without further ado, here are several uncomfortable financial facts you need to know.
1. To Make Progress, You Have to Plan for Every Paycheck
The arrival of payday is exciting, especially if you live paycheck to paycheck. Unfortunately, many people tend to overspend when payday comes, leaving nothing for their savings. The remedy for this is to pay yourself first.
As soon as you receive your paycheck, funnel at least 10% into a retirement or savings account. The easiest way to make this happen is to have the amount deducted automatically from your paycheck. After all, you can’t spend what you don’t even know you have.
It’s also a good idea to work out your tax using an online tax calculator and then either put aside funds to ensure you can cover a tax bill or make plans for investing a tax refund.
2. Saving Without Goals Will Get You Nowhere
So, you want to start a savings account, but what are your financial goals? What do you want to do with the money? Is it an emergency fund? Are you saving for retirement? Maybe you want to take a vacation. Perhaps you’re keen to get into property investment. Whatever the case, having goals for your money will help you focus on the plan and give you an incentive to contribute regularly to the cause.
3. Ignoring Debt Won’t Make It Go Away
Once you acquire debt, it’s yours forever or until you pay it back, whichever comes first. The adage, “Out of sight, out of mind,” doesn’t apply here. Whether it’s credit cards, student loans, or medical bills that have you in the red, making a plan to pay them off is the only way to get the proverbial monkey off your back. Remember, the longer you put off paying debt, the more you’ll end up owing because interest charges keep accumulating.
You have a couple of options when it comes to paying off your debt. You can pay off the ones with the smallest balances first, or you can tackle the ones with the highest interest rates first. Just don’t ignore your debt – it never goes away on its own.
4. Always Expect the Unexpected Expense
As much as you try to avoid them, unexpected expenses can and do pop up. From car repairs to medical bills, you just never know when the next major expense is going to demand payment.
The best thing you can do is to plan for the unexpected. Start an emergency fund, stashing away as much as you can afford with each paycheck. This “rainy day” fund is a great way to avoid financial anxiety because you always have it to fall back on if something happens.
5. Sometimes You Have to Spend Money to Save Money
It’s tempting to make cheaper purchases to save money in the moment, but this often leads to spending more in the future to replace cheaply made products. When shopping, be mindful of the quality of the products you buy. Higher quality items last longer, which means you’ll spend less in the future to replace them.
Good money management isn’t rocket science. Even if you never learned the ins and outs of personal finance, you can learn to handle your money effectively by understanding these important financial truths.