4 Steps to Becoming Financially Savvy
Like most everything in this life, handling your finances well is a skill that must be learned. While some folks seem to be born with the knack for making, saving, and investing money, the rest of us can learn how to become financially savvy. These steps can guide you down the right path towards financial security.
Create A Realistic Budget
The first step is understanding just how much money you are working with and what you spend it on. A good budget is detailed and flexible. Find out where you are spending your money to discover ways you may be able to economize.
The most important thing to remember about effective budgeting is that it is useless if you don't stick to it. If you find you are regularly needing to pull money out of savings to get through the month than you may need to adjust your parameters or perhaps just adjust your spending habits.
Make a Plan
To make a plan, think about both your long term and short-term goals. Your budget will reflect your plan and should include savings intended for immediate needs or wants, like vacations or car repairs, as well as money put away towards longer term goals like buying a house or retirement.
Now take a long at your financial situation in its entirety. How much do you need monthly for bills, entertainment, and household expenses? Use this as a guide to determine just how much of your monthly income you can afford to slate for savings.
Learn About the Financial World
You wouldn't try to change a tire without some basic knowledge about how it is done and the right tools for the job. Becoming financially savvy is much the same. Take the time to learn about any and all investments you are considering and, for best results, find an experienced and successful guide.
A few pointers:
- Know your credit score, how it is determined and how your actions affect it
- Understand interest and how it compounds
- Make use of the digital era. Use the internet to research and learn about finances. You may also want to consider one of the many budgeting apps available.
- Understand interest and how it compounds
Pay Down Your Debt
Once you have a clear understanding of how interest on your debt works, you will understand the need to alleviate as much of it as possible. While you may not be able to become debt free, the less of it you carry the less of your money will be lining the pockets of someone else.
When possible, prioritize the repayment of loans and credit based on the interest rate each carries. This will save you money and lessen the chances of you falling into the minimum payment spiral. Try your best not to put more on your credit cards than you can afford to pay off each month. Having an emergency savings account will go a long way towards accomplishing this goal.
The world of finances can seem like a scary and confusing place, but it doesn't have to be. Educate yourself and learn to plan ahead and strategize. You may discover that you have become financially savvy.