Personal finance is the way you handle your money. It involves all financial decisions and activities of an individual or household, such as earning, saving, investing and spending. It covers a variety of money topics including budgeting, expenses, debt, saving, retirement and insurance.
A budget is a financial roadmap that allows you to plan within your means, while having enough left over to save for long-term goals. A budget lists how much income you have compared to what’s going out. When you create a detailed and written budget it allows you to make smarter decisions with your finances on a daily basis. A budget can help remind you, how much money you have, what you spend it on, and how much, if any is left over.
Once you have created your budget and you have more of an understanding of where money goes, you can then start cutting expenses. For example, consider a cheaper childcare option, stop buying so much clothing, or reduce or eliminate consumable habits.
Debt can become stressful when you can’t keep up with the payments or you borrow more than you can afford back. You shouldn’t spend more than you earn, this is the best way to avoid debt. Getting out of debt can become even more difficult, if there’s high interest rate on credit cards or loans. When wanting to get out of debt it’s important that you pay more than the minimum amount due each month. A credit card balance can take forever to pay off, if you only choose to pay the minimum amount due. Credit cards are often major debt traps, but they’re crucial to establishing you credit rating and a great way to track spending. Sometimes going into debt can be a good thing, such as taking out a mortgage because you’re accumulating assets.
Plan for Retirement
Retirement may seem so far away, but the younger you start, the more you benefit from compound interest. If you start setting your money aside for your retirement now, it allows it to grow over the long term, and can reduce income taxes, if the funds are placed in an Individual Retirement Account (IRA), a 401(k), or a 403(b). Another strategy can be waiting as long as possible before opting to receive Social Security benefits.
One more important aspect of your personal finances is considering life insurance. Insurance is a way to protect your solid financial foundation that you’ve worked so hard for. It’s important to be prepared in case of accidents or disasters that can come along and could leave you financially unstable. Insurance can protect your life, your ability to earn income, and keep a roof over your head. These types of insurance are life insurance, disability insurance and homeowners’ insurance.
Do you have more questions about financing and insurance? Here are a few topics that may interest you.