Introduction
The world of finance and money management can seem daunting, especially if you haven’t had much financial education growing up. Knowing how to manage your money is one of the most important yet underrated skills somebody can acquire. No matter where you are in terms of your income, managing your money is the key to stability in later life.
With that in mind, we’ve written this quick guide on money management. Here you’ll learn some of the core principles that need to be followed if you’re managing money effectively. We’ll be talking about saving, credit score, acquiring loans, and retirement. You can learn more about loans at CreditNinja.com.
How To Save
The cornerstone of financial responsibility is saving. You shouldn’t throw money away on unnecessary pursuits when that money can be used for more useful things, particularly saving for the future or investing in your future.
The surest way to save is to establish a budget. Figure out your recurring costs, take it away from what you earn, then figure out where the rest of that money goes. You can implement a budget while still having money left for some fun. Take steps in your everyday life to lessen your bills, so your expenses decrease and you have more money to save/spend.
If you don’t think you can hold yourself accountable to your budget, you can arrange to have your saved cash deducted from your paycheck before it even hits your main account. That way, it’s filtered into your savings account before you even get the opportunity to spend it.
You should try to build up an emergency fund in your savings account first of all. You do this by gathering three to six months of your paycheck there, so you can cover costs if you can’t earn money for whatever reason.
Once you have a financial safety cushion set up, you should start looking into retirement savings. We have more on that below. You can also consider investing some of your earnings to make some money for the future. If you go that route, you should control for risk. Note that investing in index funds and slower, safer opportunities aren’t as risky as the stock market or the burgeoning cryptocurrency market.
Credit Score & Loans
Your credit score follows you around for your entire financial life, so it’s important to keep it in good condition. This is a calculation that takes your past financial behaviors and creates an objective score, which is then used to judge how trustworthy you are at paying back your debts. A good credit score enables you to get larger, lower-interest loans that span longer repayment periods. For a bad credit score, you can expect the exact opposite.
While credit bureaus process credit scores differently, they’ll still look for the same basic signs that you’re financially responsible. Many lenders use the FICO credit scoring system. The two main factors that influence your credit score are your payment history and your credit usage.
You should make any and all debt payments on time and try to remain debt-free. Yes, that includes credit cards too, since the interest rates on unpaid credit cards will seriously damage your attempts at money management, and keeping credit usage down is good for your score.
When getting loans, have a repayment plan in mind before even taking them. If your credit score is poor, you may have to get loans that are secured against assets you own, so those assets can be taken from you if you don’t pay. That’s why paying loan repayments on time is so important.
Preparing For Retirement
The goal of money management is to live a happy and fulfilled life without financial worries. A big part of this is preparing for retirement, so you can spend your golden years in peace with all your needs met.
The earlier you start saving for retirement, the better. After you’ve mastered saving, got a comfortable budget, and saved up for an emergency, you should then start saving towards retirement.
How much you need to save is anybody’s guess. It depends on where you are, your individual circumstances, and your ambitions for the future. You can get a figure to aim towards by using retirement calculators online. The general rule is that you should have saved twice your working salary by 35, six times by 50, and ten times by your late 60s.
Make use of retirement accounts. Employers may offer 401(k) or 403(b) plans that you should contribute to, so you get more money from your bosses. You can get a standard IRA or a Roth IRA for individual retirement savings too, available from most brokerages. The difference between the two IRAs is how and when your tax is calculated and taken from you.
