A personal financial journey can seem overwhelming and complicated from the financial books and blogs but that’s not the case. Keep in mind that it won’t be easy as a beginner it will take time to build new habits. The following are personal finance tips for a beginner:
Have Financial Goals
Figure what goals come first in your life to be able to set your financial goals. Have clear goals to help you keep motivated and work towards reaching the goals faster. Remember this is your first time, do not set outrageous goals. Start small and slowly work your way up.
Come up with the goals you want to achieve in the next three months, then next year, and five years to come. This way you will have both short-term and long-term goals you are looking forward to. To achieve your long-term goals, you can set short-term goals to be steppingstones. Write the goals down and have a specific day to track your progress.
Have an Emergency Fund
Emergencies cannot be predicted, they occur when we least expect them. Some of the common financial emergencies include; sudden job loss, natural disasters, car repairs, house repairs, and medical expenses. The best way is to have an emergency fund of three to six months of living expenses.
This simply means if you lost your job, you will be able to live comfortably for some months as you look for a new job or alternative means of income. Some people use their emergency funds to start up businesses In case of job loss. According to studies, it showed that 24% of Americans don’t have emergency funds although they are good at saving. Emergencies may not happen but it is good to be prepared.
Stay Out of Bad Debt
Bad debt is considered as any debt acquired from buying something that is going to lose its value or generate zero income. A credit card debt and an auto loan are an example of bad debt. If you purchase something to benefit you financially in the future, that is more beneficial than a credit card debt. Good debt usually has low interest rates.
A student loan is good debt because going to school is great for your career and can increase your pay as an employee. Paying a mortgage is considered a good debt since, in the end, you become a homeowner. Mortgages are low-interest and long-term loans which means you will still have money for investment and other things.
Create a Budget
When you are set to start a proper financial journey you have to look at your monthly expenses and divide them into needs and wants. Determine what you can do without but don’t cut out all the fun activities. Leave room to attend your favorite concert or go out with friends.
Cut out recurring things that are not essential and are expensive like that gym membership. Instead, you can plan to be working out at home it is cheaper. The common rule of the budget is 50/30/20. This means that 50% of your income goes to the necessities such as food and housing, 20% goes to savings, and the remaining 30% you can use to do whatever you want.