Money management is essential to things such as growing your net worth, improving your financial literacy, and using your money efficiently. Let’s take a look at seven ways you can improve your financial management skills and expand your wealth!
7. Start with a form of investing.
Investing is one of the best-known and most efficient ways to build wealth. The ability to invest in the stock market is widely accessible and offers a wide range of returns. There are two common ways to go about investing in the stock market.
Independently: Through the apps and websites offered by many different investment companies, individuals can invest freely and as they please. This kind of investing offers potential savings to the individual as they are not subject to all of the fees imposed by a brokerage. This type of investing also gives the individual more flexibility in deciding what to invest in.
Through a brokerage: Investing through a brokerage can be a great idea. As an amateur investor, a brokerage will provide professional advice on your investments as well as handle any paperwork or inconveniences. Investing with a brokerage will come with fees (management fees, trading fees, etc.), but, in many cases, you actually profit more from the expertise than you lose to the fees.
6. Begin saving for retirement
No matter your age, saving for retirement is an essential part of your finances. It’s simple: the longer and the more you save for your retirement, the more you will retire with. “But I don’t care about retiring rich!” Fair enough, but you definitely do not want to retire broke, or worse, not retire at all. Here are two popular ways to save for retirement:
401K: Most employers today offer a 401K plan to their employees. These plans allow the employee to take money directly out of their paycheck and invest it for retirement. The employer will incentivize the employee to do so with a benefit such as a percentage of the contribution or even 100%.
Roth IRA: The Roth IRA is an individual retirement plan. This plan is suitable for people in many different circumstances. (such as people who are maxing out their 401K or some self-employed people). With tax advantages not afforded by the typical investment (such as protection from taxation on capital gains), Roth IRAs can be a great way to save for retirement. Click here to learn more about Roth IRAs.
5. Start building an emergency fund.
Building an emergency fund is essential to protecting all of your hard work toward becoming financially stable. It’s typical of life to bring us down right as it seems we are about to put the last piece in the puzzle; that’s what the emergency fund is for. Here are two ways people go about creating emergency funds:
Cash: Sometimes there is nothing safer in the world than having some cash on hand. It is quick and easy to access and can be taken at almost any location.
Savings account: Creating an emergency fund can be as simple as storing some money in a savings account. Here, you still have relatively quick access to the fund, and it is protected by your bank’s security procedures.
4. Start building your credit score.
Credit cards are a topic of debt in the world of finances, but here’s something tough to dispute: “having a good-excellent credit score is a positive thing.” Why? Because when you need to use your credit, it does not matter how you feel about it. Yes, some people simply cannot control themselves with credit, but if you can, then start building your credit score. Here are two reasons to do so:
Time in Credit: Time in credit is a key element to having a good credit score. The more time in credit you have, the more the credit companies can see how responsible you have been with your credit over time.
Rewards: If used responsibly, a credit card will reward the user upon every purchase. This is infinitely better than making a regular purchase where the buyer receives no benefits.
For more reasons to consider starting a credit line, click here.
3. Do not let your checking account run dry.
Many people have the awful habit of letting their checking accounts run dry. Yes, this is something that sometimes naturally happens when life starts to overwhelm you, but, all too often, it is just a lack of accountability mixed with bad habits. If you find yourself at the bar on Saturday night or in an other similar scenario,and you know you only have $50 in the bank, you are making both poor life and financial decisions.
Not to worry. Everyone makes mistakes, and oftentimes they come with any easy fix. For now, just try to keep a decent amount of money in that checking account!
2. Direct deposit funds from each paycheck.
Direct deposit can be an incredibly powerful tool for paying on debts and making investments. Directly depositing funds each month, and or paycheck, allows you to maintain an increadible level on consistency. This kind on consistency can help with at least these two things:
Mimicing the market: Making investments, at least monthly, allows for your total returns on a stock, fund, or bond to mimic the performance of that investment over time. If you are investing in an asset that is predicted or known to perform positivly over a yearly basis, you will be able to lock in these results for yourself.
Paying off debts: Making consistent and sizable payments on your debts over time is the most efficient way to pay your debts as well as to pay the least amount of interests on your debts.
1. Create a monthly budget.
Creating a monthly budget does a lot to help keep your finances in order, as long as you develop the consistency to stick to it. Budgets are simply a mathematical breakdown of your earnings, expenses, and savings. Therefore, it should be fairly easy to fix any financial situation with the right budget. Here are two popular budgets:
50/30/20 budget: This budget is simple. 50% of your income is for “expenses”, 30% of your income is for “spending”, and 20% of your income is for savings.
The envelope budget: The envelope budget is old-fashioned and easy. It is also cash-based. The idea is to keep one envelope for each expense and put the exact amount of cash for each expense in its designated envelope. This could also be attempted digitally, as most people keep limited cash on themselves today.
If you are more interested in this subject, you can click here to visit another post about budgeting or here for a government website about budgeting basics.
