While many Americans associate financial wellbeing purely with the size of their paycheck, the reality is that having financial stability is mostly about what you do after earning your money. The difference between a consumer who is financially secure and one who is on the verge of bankruptcy is often about which individual is more financially literate. Here are 5 essential personal finance tips which are instrumental towards living comfortably and prosperously.
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1. Learn the Value of Budgeting
Without keeping a close tally on where your money goes, it will be nearly impossible to get an accurate idea of how you can save money. It’s preposterous how many consumers don’t have a clue how much they spend on their necessities and entertainment each month. Gaining control of your finances requires an understanding of how much money you have and what you’re spending it on, which requires you to create a budget and track your expenses.
2. Start Saving Every Month
One of the most foundational principles of financial literacy is learning to save as much money as possible each month. Even if you’re at a point where your monthly budget is extremely tight, it’s important to get into the habit of saving money. Many consumers make the mistake of thinking that if they can’t put away a sizable amount of money, then it’s simply not worth the effort. In reality, even if all you can put away each month is a single dollar, it’s still worth getting into the habit of saving some of your paycheck. Many financial advisors like to call this learning how to “pay yourself first.”
3. Build your Credit Score
Your credit score is a crucial number than can have a tremendous impact on your financial wellbeing, such as your access to mortgages, car loans, and top credit cards. Your credit score is impacted by a number of factors including your payment history, the amount owed, the length of your credit history, and the type of credit you have. The more you learn about credit reports, the sooner you’ll begin reaping the benefits of having excellent credit.
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4. Create an Emergency Fund
An emergency fund is the money that will support you if disaster strikes, such as an illness in your family or the loss of your job. Ideally, you should have enough money in your emergency fund to cover at least a few months of your monthly expenses. Moreover, since this money needs be accessible if a crisis occurs, it should be stored in a way that you’ll have easy access to it. While it’s impossible to predict every challenge that will come your way, having an emergency fund will allow you to overcome these unexpected difficulties more smoothly.
5. Take Financial Literary Seriously
The more you know about your personal finances, the better positioned you’ll be to increase your standard of living. Maybe ignorance is bliss in the short term, but in the long run you’ll find that having an understanding of relevant financial concepts will pay off exponentially. The path to financial stability requires time and effort, and one key area that you cannot afford to neglect is your financial education. Do research, take notes, and learn everything you can about seizing control of your financial future.
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