No two financial situations are exactly alike. We each have our own differing incomes and our own levels of debt, monthly expenses, and spending habits.
Nonetheless, while our individual financial situations may look very different, commonsense money tips can be applied universally. It doesn’t matter your age or how much you have in your bank account; there are just some principles that everyone should know and take to heart.
No matter who you are, here are six financial tips that have proven useful across every income and lifestyle.
1. Remember, it’s never too early to start saving.
No matter your financial situation, prioritizing saving is never a bad idea.
When it comes to savings, you should focus on two things: establishing an emergency fund and retirement.
Life regularly delivers the unexpected. We can’t always pay for emergencies or special needs out of pocket. So…would you rather build up more credit card debt or pull from an emergency fund in these situations? The latter puts you in a much better spot financially.
If you’re new to the savings gig, start by using your credit card less and your debit card more. Better yet, utilize a prepaid debit card for all of your expenses. Not only do prepaid cards prevent overspending, they typically come with other great benefits. Many prepaid cards will even help you save money as you spend, rounding up to the nearest dollar with every purchase. Your emergency fund will basically build itself.
And nowadays, it’s not just the big dogs that are offering help with retirements. And for the retirement side of things, it can be straightforward to get started. , If your employer offers a small business 401(k) plan, contribute a percentage of your income toward it and take advantage of any company-sponsored matching. That’s the most hassle-free way to help set you up for a solid financial future.
2. Avoid overspending by planning to live below your means.
This one may seem obvious: don’t spend money that you don’t have. There’s actually much more to this simple rule than meets the eye. Not overspending means so much more than just watching to ensure your bank account doesn’t hit zero. It means budgeting, spending your money wisely, and living below your means.
If you make $60,000/year, live as if you’re only making $50,000. A good rule of thumb is to live on 15% less than what you earn annually. So many of us think that our financial troubles would go away if we just made more money. It’s actually not that simple. Most people will spend more as soon as they start making more.
Whether your salary is $30,000 or $300,000, you should always live on an amount below what you’re earning. It might be challenging at first, but that extra money that you’re not spending on silly things can be invested or saved. This healthy money habit will end up paying off big time for you if you practice it long enough.
3. Budget, then pay attention to where your money actually goes.
It might be more precise to say you should budget because it helps you see where your money is going. Budgeting helps you get a clear, full picture of your monthly income, expenses, and savings opportunities. Budgeting is essential if you want to save money and take control of your finances.
Budgeting also helps you see where your money is going. You might have subscriptions you don’t need. You may be spending more on takeout each week than you realize. All of these things add up and prevent us from reaching financial goals.
4. Pay off debt and recognize the importance of building credit.
If you aren’t paying your debts off in full and on time, it can really hurt you financially. A bad credit score can affect your ability to rent an apartment or buy a home. Actually, a bad credit history will affect your ability to get any type of loan, and you’ll likely pay higher interest rates.
Get in the habit of making on-time payments and don’t build up credit card debt. It can be difficult to pay off a large balance, and you’ll continue to accrue interest charges. On-time payments have one of the biggest impacts on your credit score, with credit utilization being a close second. Make sure you know how to build up your credit rating and make it a priority.
5. Know the difference between good and bad debt.
It’s OK to have credit cards and use them. After all, they are a great tool for building credit. They’ll only harm you if you don’t use them responsibly. It will also help you know about the different kinds of debt, as some are better than others.
What’s the difference between “good” debt and “bad” debt? The key difference normally lies in whether there are any assets used to secure the loan.
Bad debt typically has no tangible asset tied to it that’s held as security for repayment. Bad debt shows up most often as a high-interest credit card that’s been maxed out. On the other hand, good debt might help you acquire something you can use to make money. For example, getting a loan to purchase a rental property is good debt. Rental income can help pay for the loan as it makes money for the landlord.
Investing in rental property doesn’t mean you’ve arrived as far as finances go. While such assets are considered good debt, you still need to be smart about where your money goes. Mix up your credit types and learn about the different ways you can make money.
6. Take advantage of the time value of money.
The time value of money is a simple concept, yet it’s something that many people don’t leverage to their advantage. For example, if you invest $100 today, it could be worth more a year from now with some wise investing. Start investing early.
The earlier in life that you start investing, the better. Even if you start investing one year sooner than you’d planned, you’ll still gain an edge you wouldn’t have had otherwise. Keep in mind that it isn’t always about how much you invest. Rather, it’s about how soon you start investing to make your money work for you.
If you’re new to investing, there are plenty of online resources that can help you get started. Learn about the different types of investments. Once you understand your investment options, you can start building an investment strategy and set aside money for it. Better yet, invest a line item in your monthly budget.
Although finances look different for everyone, the six principles outlined above are basic concepts everyone should know and practice. No matter what your current financial state is, it never hurts to do a gut check. How are you doing with the above guidelines? Sometimes you need to get back to the basics. Doing so will put you on the road to financial health and freedom faster than you thought possible.
