Many people these days (perhaps a majority) have few financial skills. You may be one of those people. Most likely, the schools you attended emphasized the importance of getting an income instead of the ways to build wealth and manage your money. By now, you are probably discovering how difficult it is to function in life without some basic financial management skills.
But getting your financial act together doesn’t have to be a complicated chore. Knowing some key fundamentals of personal finance can help bring balance and prosperity to your life. Consider these five financial skills to that will help propel you forward.
Understand Your Situation
You can begin managing your money by creating a financial profile. This involves tallying your total savings, your assets, your debt liabilities, your spending habits, and your cash flow status. After all, what’s a financial skill set without the understanding of what needs to be done?
During this process, you should determine whether your savings are on the right track. Along the same lines, you should evaluate all of your assets; this should include your home, securities, rental property, and any valuable collections, to name a few. Ideally, you should be in a position where the proceeds from the sale of your assets could pay off your liabilities.
In the same manner, you should take a look at your debts. It is important to identify short-term and long-term debt. Other kinds of liabilities are child support, alimony, and back taxes/penalties.
Next, you should examine your spending habits. It is important to determine whether you do a lot of unplanned spending. Similarly, to find out whether you live paycheck to paycheck, you should analyze the rate that money flows in and out of your bank account. To create more balance, you could possibly adjust your payment schedule and reduce spending on things like eating out and other entertainment.
Determine the Best Step to Take Right Now
Once you have created your financial profile, you can start the first actionable step of developing your budget. It should include your debt balances, monthly expenses, and payments. All of this information is a part of developing your financial skills. Money Under 30 notes that it’s smart to place some spending limits on your needs, wants, savings, and debt payments.
The next actionable task should be getting rid of as much debt as you can. Also, adopt a personal policy that is designed to avoid future debt. It is much harder to build wealth with monthly payments eating up your earnings.
Tracking your spending is an effective way of gaining control of your budget. As a result, you may discover some overspending habits. You can maintain good tracking patterns by keeping a journal or using one of the many online budgeting apps. Additionally, for tax and budget purposes, you should save your receipts if you plan to itemize.
The key here is to identify what is the most pressing issue based on your priorities. If it’s saving for a vacation, focus on saving. If it’s paying off debt, put all extra income to debt. When you set out your priorities clearly, the next best step becomes more readily apparent.
Make Changes That Have the Most Bang for the Buck
Although high amounts of energy usage are common for many households, it’s never pleasant to find a high price on your energy bill. As shocking as the numbers can be, there are ways to save money on energy usage.
The easiest is to intentionally not use as much energy. Invest in energy-efficient appliances, and turn them off when not in use. In the winter, turn the thermostat down a few degrees; in the summer, turn it up a few. Parents should encourage their kids to limit their electronics usage and spend more time playing outside or reading.
Energy conservation is not only beneficial for your finances, but it also reduces pollution in the environment and reduces strain on the electrical grid.
These energy-saving tactics end up becoming financial skills. By being a bit more flexible on home heating and air conditioning, you free up some money to go towards the things that really matter to you.
Plan for Big-Ticket Purchases In Advance
Success With Money suggests that another major budget consideration is the potential purchase of a big-ticket item. Rather than satisfy your immediate desires by buying the item on credit, it is better to save up for it and pay cash.
Doing so will ultimately save you a lot on interest payments. Plus, you can avoid the possibility of missed payment penalties and negative hits on your credit rating.
This means putting your knowledge and self-discipline to the test. It can be very difficult to resist impulse spending, especially if it has been your default for a long time.
But by using the financial skill of planning for big expenses, you end up accomplishing the goal without incurring collateral consequences in other areas.
Equip Yourself with New Job Skills
It’s not a financial skill strictly speaking, but returning to school to get an advanced degree is another major item to consider when it comes to getting the most bang for your buck. Instead of attending classes in person at a traditional brick-and-mortar campus, consider the savings achieved when taking coursework online.
Programs like those found at the University of Phoenix range from associate’s to doctoral degrees, and the money saved on much more affordable tuition is substantial. Looking forward, with a degree in hand, the professional opportunities that open can be equally substantial, making this a smart investment.
Another key to making this work for you is to pay for the education without student loans. There are many resources to make it happen. Also ensure that you are studying something with marketable value, and not a degree that will merely add student loan debt to your equation.
With due diligence, smart planning, and developing basic financial skills, you can get control of your money and pave the way to a better financial future. Plus, by feeling secure about your finances, your present life can be more enjoyable and productive. You don’t have to be intimidated by financial matters!
Guest article by Chelsea Lamb from Business Pop.