When you think about your personal finances, you have to think about what works best for you. The same thing that works well for one person may not yield the same results for the next person.
However, there are do’s and don’ts that all individuals should pay attention to regarding their finances. Here’s a list of things that you should implement into your personal finance strategies, and some things you should avoid at all possible costs.
Create a Budget – This is the first thing you want to do regarding your personal finances. A budget will give you a clear view of how much money you are earning and where you are spending it. A budget also allows you to see which unnecessary items you can eliminate. For example, if you find yourself having memberships to places you never visit, you may want to cancel those memberships and save the extra money.
Spend Less Than You Earn – This is one of the most important things you can do to improve your personal finances. Credit cards have placed many people in the habit of buying things with the intent of paying for them later. Instead of saving money and buying items with cash, many people make purchases with their credit cards and find themselves struggling to pay off high balances. To make matters worse, some individuals only pay the minimum required balance on their credit cards. This is like throwing money down the drain.
Invest Your Money – It is important to invest your money. Whether you are a conservative or aggressive investor, there is an investment out there to meet your needs. Investing your money takes advantage of compound interest. Compound interest is when your principal and interest earns interest. Compound interest can be earned daily, weekly, monthly, or yearly. You should research any investment you are interested in to see if it fits your financial goals.]
Have Enough Cash Available – The recession has made things extremely unpredictable. Even if you feel like your job is relatively safe, it is a good idea to have enough cash saved that would cover at least six months of living expenses. This money should be placed in an interest-bearing savings account. You never know when you may experience a rainy day.
Don’t Try to Pick the Next Big Investment – Many investors get caught up in all of the hype of the next big investment that is supposed to bring astronomical returns. The problem with this is most investors end up losing substantial amounts of money. When investing, it is important to diversify your investment portfolio. You never want to put all of your eggs in one basket. Diversification will minimize your risk, and give you a better chance of earning more money over the long-term.
Don’t Buy Things You Can’t Afford – Securing your financial future is all about learning to live within your means. This does not mean you can't treat yourself to the occasional shopping spree, but it may not be a good idea if you are living paycheck to paycheck. If you are going to use your credit card to purchase items, make sure you can pay the balance off in full at the end of the month.
Don’t Stop Contributing to Your Retirement Accounts – When markets are low, people tend to stop contributing to their 401 (k) plans and other retirement accounts. 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 low. Contributing a continual monthly amount takes advantage of dollar-cost averaging.
Don’t Take On Risk You’re Not Comfortable With – Some investors feel the need to make up for losses by taking on riskier investments. This is not a good thing to do. It is always important to choose investments based on your risk preferences. You don’t want the headache of staying up all night worrying about losing your money.
Jessica Bosari is an Internet copywriter and blogger for various publications and her own blog. You can read more of Jessica's work here. If you have any comments or questions about SavingTools or about saving money, leave your comments in the form below or email firstname.lastname@example.org. Thanks!