Personal finance does not just happen. Individuals and families have to be proactive to set themselves up for long-term success. Knowledge is power in this regard, and getting an early start is a necessity. Here are some areas that are worth learning more about and putting into practice when it comes to proactive personal finance.
It’s hard to get a handle on your finances when you do not know what’s coming in and going out each month. This is where a budget comes into play. It’s a good idea to spend every dollar each month, but not in a literal sense. You should always pay yourself first. This should be your first bill, and it means that some money should go toward emergency and long-term savings each and every month. After getting all monthly bills listed, be sure to allow some money for entertainment or travel and also put some toward savings. The capital saved will allow for the long-term building of wealth, and it’s the only way to get rich over time.
Researching loans for the best interest rate possible is not the only important component to borrowing money. Most people will need to borrow money at one point or another, whether it’s the $500 easy installment loans you can research online or a $150,000 mortgage on a house. Paying off all debts on a timely basis is key to getting good interest rates. Those who are loose with their money and pay little attention to due dates will likely need to pay more in interest costs over time. Every dollar that goes to interest helps the lender generate revenue, which is how they stay in business. Every dollar of interest saved goes to helping your bottom line and building up your wealth.
There are some areas of spending that are hard to cut. For example, everyone will need to have somewhere to live. Everyone will need transportation unless they live in a centrally located urban area and can walk everywhere they need to go. Food is a necessity of life, as are clothes that are appropriate for one’s job. There are usually areas of spending that can get cut, however. For example, if you’re spending $500 a month on restaurant charges, you might be able to cut that down to $200 a month and save some of the $300 difference by eating at home or bringing lunch to work. Cutting most cable plans can cut $100 a month. Downsizing living quarters can also save money. Finding areas to cut is a function of the budgeting process.
Putting money into a savings account will not work for building wealth over time. Interest rates are generally below the rate of inflation. Having some emergency savings in a savings account is appropriate, but most savings should go into an investment account. Many online brokerages allow for low-cost purchases of stock and bond funds that should allow for growth. When investing, it’s important to take management fees into account, as these can really cut into the long-term returns that you’re looking to achieve. Also, investing through a work-sponsored program that provides matching funds is a great way to see your money grow over time.
Setting yourself up for long-term financial success requires making good decisions. This involves budgeting and then adjusting when necessary. Paying yourself first, investing capital and minimizing spending where appropriate are the only ways to really build long-term wealth. Getting started as early as possible is important, as it will allow you to take advantage of the power of compounding.