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Personal finance has been a hot topic of discussion as of late and with good reason. With money on the forefront of everyone’s mind, there are plenty of articles out there offering tidbits about how to save more money and how to make more money. While these can be extremely helpful for some, often this advice is only applicable in specific situations. What some fail to realize is that personal finance is just that; it’s personal and, therefore, must be personalized. There is seldom a list of tips and tricks in personal finance that are appropriate to every individual’s situation. A financial plan must make sense for that person and that person’s lifestyle. However, while one thing that works well for one person may not yield the same results for the next person, there are some general do’s and dont’s every person should pay attention to regarding their finances.
1. Create a Budget: This is the very first thing that you want to do regarding your personal finances. A budget provides a clear view of how much money you are earning, how much money you are spending, and where you are spending it. When creating a budget, you are forced to evaluate your spending habits and your actual financial standings. A budget allows you to see which items you spend money on are actually unnecessary and can be eliminated. For example, while developing a budget you may run across a membership you pay for to a place that you never visit. It is after evaluating your entire budget that you are able to decide whether you want to cancel that membership and save the extra money or not. Obviously each individual is going to have a budget that is unique to their situation. But as a general rule, learning about your spending habits and carefully mapping them out is a great way to better grasp a successful financial plan.
2. Invest Your Money: While investing can be a somewhat nerve racking endeavor, it is an important step to take. Regardless of whether you are a conservative or an aggressive investor, there is an investment out there that can meet your needs and interests. Investing money is one of the best ways to strengthen your financial portfolio. Furthermore, investing is one of the best ways to take advantage of compound interest. Compound interest is when interest is earned not only on an original investment, but also on its accrued earnings. Obviously, all investments should be done after careful research and thoughtful consideration of your own personal needs.
1. Don’t Buy Things You Can’t Afford: While this may sound like pretty simple advice, it can be difficult. Credit cards have made it easy to spend money we don’t have. But as most everyone knows, this is the easiest way to get into financial trouble. Securing a stable financial future is all about learning to live comfortably with your means. I am not suggesting that you should occasionally go out and spend a little money on yourself; just don’t make a habit of it. While planning your budget evaluate the amount of money you have to spend based off of the amount of money you make. If you are going to use a credit card to purchase a large item, make sure that you can pay the balance off in full by the end of the month.
2. Don’t Stop Contributing to Your Retirement Accounts: When markets are low (as they are right now), people often stop contributing to their 401 (k) plans. This is a very bad move. Not only will you miss out if your employer offers matching contributions, but you will also miss the opportunity to buy more stock when the prices are down. When times are difficult and money is tight, our natural response is to hold on to as much of our money as possible. However, the smartest thing to do it to continue to support your retirement funds for your future. Make the most of the low markets.
While these two do’s and two dont’s are fairly general, they are great starters for bettering your personal finances and starting on the path to financial stability.