Having a good understanding of the basics of money management can help keep your finances on track and cope with the inevitable bumps on the road to becoming debt free.
Some of the following financial basics are essential to acquire:
1. Setting and achieving financial goals
Often, there’s a gap between what you’d like to achieve with your money and the actual money available, thus making it essential to set and work towards financial goals. Goal setting involves:
- Deciding what to do with your money
- Setting realistic time frames for achieving each goal
- Deciding how to accomplish the goal
- Having more than one goal at a time or focusing all efforts on attaining one very important and relatively costly goal, like owning your home.
2. Building a financial safety net
Another financial recovery goal should include, increasing the balance in your savings account. Having money in savings allows one to pay cash instead of accumulating debt for expenses such as car repairs and home maintenance. Saving account money can also act as a safety net for job loss. Financial experts advise that a minimum of 10% of your income every month is saved to build a cushion of 3 to 6 months’ salary that is easily accessible.
3. Using a budget
As finances improve, don’t do away with a budget as it is a significant money management tool. Even if debt is conquered and disposable income becomes available, it is important to continue using a budget to plan and monitor spending to prevent debt. Financial goals are more likely to be achieved, if you build them into your budget.
4. Being a responsible money manager
As finances improve, continue to manage your money well. Avoid backsliding by setting financial goals, having enough money in savings, and living on a budget.
5. Paying with cash and not with credit
6. Paying bills on time
7. Lowered credit card balances
8. Treating home equity with respect and not as a piggy bank
9. Becoming a lifelong money learner
Being smart with money and finances’ requires a lifelong commitment, as the laws that pertain to credit and debt change over time, as do laws that apply to other aspects of money management, such as taxes and investments.
10. Relying on professional advice and assistance.
No matter how much you learn about money management, financial professionals, insurance agents, brokers and estate-planning attorneys, know best.