In today’s world, if you have money, you have freedom. If you want to survive or have a luxurious life, money is a necessity. That’s why you should always look for ways to improve your financial situation. From creating a budget to analyzing your debt, there is a lot you can do to stay financially healthy. Check out these five ways you can improve your finances this year.
1. Create, Maintain, or Rework Your Budget
One of the most common mistakes for many people is that they do not budget. But having a budget is important for controlling your spending, managing and tracking your expenses, and saving money.
In order to budget effectively, you first need to understand your cash flow. Determine the amount of income you receive every month (including your salary, dividends, etc.) and then analyze cash outflows. Typical monthly outflows include mortgage or rent, utility bills, and groceries, among others. When analyzing your expenses, you should determine which are essential or nonessential.
One useful money management strategy is the 50/20/30 rule, in which you divide your expenses into three categories. Half of your income is used for essential needs (e.g., housing, food, insurance). The next 20% goes toward your savings and financial goals, while the remaining 30% can be spent on nonessentials like shopping or travel.
2. Calculate and Analyze Your Debt
Having debts is definitely a stressful situation, which is not good for your financial health. The best thing you can do is not to ignore your debts and know how to manage them. There are several effective methods and strategies that you can use for debt management.
One of them is the debt snowball method, which provides you with quick wins and encourages you to move forward. First, you need to list all of your debts from smallest to largest. Then make the minimum payment on every debt and use the remaining money to pay off the smallest debt first. Once the debt with the smallest remaining balance is paid off, you can move to the debt with the next smallest balance.
Another good method is the debt avalanche strategy, in which you pay off your debts starting with the highest interest rates first. This method helps you save money in the long run, even though it might be discouraging because it takes time.
3. Get a Credit Builder Card
A credit builder card is a card that helps build your credit. This card is secured by an initial deposit or funds transfer, which becomes the card’s credit limit. If a cardholder stops paying their bills, the issuer will take the money from the deposit. Because this reduces the issuer’s risk, a secured credit card is typically easier to qualify for.
That makes this type of card perfect for those who have bad credit or no credit at all. You can use a secured credit card just as you would a traditional one. As with a regular credit card, you’ll want to stay on top of your payments to keep your account in good standing. This will ultimately help build your credit and boost your score.
4. Set Up An Emergency Fund
It’s vital that you create an emergency fund to secure your financial future. This is a cash reserve that is set aside for financial emergencies or any unplanned expenses. Money in your emergency fund is used for unplanned bills and costs that are not part of your regular monthly spending. The general rule is that your emergency fund should cover three to six months of living expenses.
The best and most reliable place to keep your emergency fund is a high-yield savings account. This type of account provides quick and easy access to your money and pays a competitive yield.
5. Use Automated Savings
Automating your savings helps you make sure that you follow your savings goals. To do this, determine a certain amount of money you can automatically transfer to your savings account based on your budget. By taking this approach, you can save time and ensure that you do not forget to save.
Creating an automatic savings plan is not difficult. First you need to analyze your budget to understand what amount of money you can set aside. Then set a goal (either short-term or long-term) for your automatic savings. Make sure you choose a savings account with minimal fees. Do not withdraw money from this account unless it is really necessary.
You can also use special bank and financial apps to automate your savings. With the help of these apps, you can decide how much you save and how often automated withdrawals will happen.
Not every financial improvement takes years to accomplish. Sometimes you can take steps to improve your financial situation over your lunch break or over a weekend.
There are plenty of effective methods and ways to improve your finances, like those outlined above. Remember that you do not need to have any special degree in financing in order to make your financial situation better. Follow these quick tips and you’ll be on your way to financial freedom in no time.