A Beginner’s Guide to Making Smart Financial Decisions
Many people devote time and energy to maintaining a healthy lifestyle. Good nutrition, exercise, and sleep are all essential elements in maintaining a healthy body. However, it is also vital that you take care of your financial health.
Financial health refers to the current state of your finances. These may include your current income, savings, assets, expenses, liabilities, and retirement savings. Financial health is an essential part of your overall well-being and satisfaction in life.
However, many people want to improve their financial health but don’t know how to or are having difficulty making the proper financial decisions. For example, a study revealed that approximately 66 percent of working millennials have no retirement savings.Â
The data is concerning since there are an estimated 83.2 million millennials born from 1981–1991. Therefore, it’s critical to hone skills that will enable you to have more financial stability in the future. Here are some tips for beginners to help you make wise financial decisions.
Establish Your Priorities
Establishing your priorities is the first step in your financial journey. To make the best financial decisions, you must first determine where and how to spend your limited financial resources. Everyone’s financial situation, as well as their life priorities, is unique.
According to data in 2021, almost 52 percent of Americans believe that boosting emergency finances should be a priority, while 32 percent believe that reducing debts should be the priority. So now, ask yourself what your priorities are in life and how your finances can get you there?Â
It’s critical to examine your present financial situation before setting your financial priorities. Begin by establishing a list of all the bills you pay each month, as well as the amounts owed. You’ll probably learn that your earnings aren’t always enough, so you’ll have to prioritize.
Paying for housing and utilities such as heating and water should always be the top priority. In addition, paying for food is essential, but be careful not to overpay on groceries that you don’t truly need.
Following that, you should pay off any debts that may have an impact on your credit score, as well as any other required payments. You should also save at least 10-15 percent of your monthly salary for retirement.
Create a Budget Plan
A written budget is essential since it is all too easy to lose track of your spending. Budgeting is critical because it allows you to keep track of your expenses, regulate your spending, and save more money.
Financial decisions are much easier when you have a complete picture of your earnings and expenses. It can also be used to prepare for emergencies, manage your bills, and plan for long-term financial goals.
When creating a budget, the best approach to get started is to keep it simple. For example, adopting the 50-30-20 guideline can make things a little easier. It’s simple: allocate 50 percent of your budget to needs, 30 percent to wants, and 20 percent to savings, emergencies, and debts.
Get Rid of Debt
Getting out of debt is essential for improving your financial situation. There are numerous strategies to get out of debt, including cutting back on spending/cost of living, starting a side business, or applying for a loan.
A loan may appear to cost you extra money, but if done correctly, it can spare you from late payments or exorbitant interest rates. Make sure to check all your options to reduce your debt. For example, taking out something similar to a payday loan to pay off part of your debt may be a better option than missing payments and paying late penalties.
Save Any Way Possible
Saving money is essential since it safeguards your finances in the event of an emergency. In addition, extra cash can provide you with a greater sense of financial freedom. Personal savings in the U.S. has increased from 11 percent in 1960 to 13.7 percent in 2020.
That means an estimated 2.3 trillion U.S. dollars of personal savings in the U.S. in 2020. Savings can look a lot of different ways, including bank deposits, college savings, emergency funds, retirement plans, and investment portfolios.
Saving money is always a prudent financial decision that will benefit you in the long term. The sooner you start saving, the better the outcome.
Have an Emergency Fund
Emergencies can occur at any time, so you must be ready. Medical emergencies are common and can be costly if you are not prepared. It could also be the result of an unexpected requirement for home or car maintenance.
Difficult financial decisions must be made, and this frequently entails taking money away from something else. When financial emergencies occur, many people may make poor monetary judgments when under stress. Having an emergency fund in place will keep you from making poor financial decisions under stress, allowing you to continue saving and budgeting as planned.
Planning is Important
Financial decisions should not be made hastily and should have thorough planning. Do not spend more than what you earn, and always save for emergencies. Keep close note of all your expenditures and purchases. Then, of course, reward yourself once in a while.
