Financial literacy doesn’t come easily to many people. If you’re lucky, you learn it as you go without making too many big mistakes that leave you paying off high-interest debts or filing for bankruptcy. While a string of bad luck can defeat even a financially savvy and responsible person, you’ll recover from setbacks more quickly if you are smart with your money. The steps below can help you improve how you manage the money that you have.
Have a Budget
Creating a budget is one of the most responsible things you can do with your finances, and while it may seem stressful at first, it will quickly become second nature. In fact, when you’ve made a solid budget, you always know exactly how much you can spend on anything, and this can actually relieve a lot of stress. There are many apps that can help you track your spending and budget if you are struggling with this element. When you drill down and look at your monthly expenses, you might also be able to find a number of ways to save, such as seeing if you can secure a lower interest rate by refinancing your student loans with a private lender. A lower interest rate can mean paying off your loan years sooner and spending hundreds or thousands of dollars less.
There are a few different types of savings you should have. First, you should build up an emergency savings fund. This should be kept in a liquid account. Conventional wisdom says you should have three to six months of expenses, but in fact, you might want to vary this. If you can only save up $500 or $1000 to start with, don’t be discouraged. This still puts you significantly ahead of people who have no buffer at all, and this can be a big help if you have an unexpected car repair, dental bill or something similar. If you are self-employed, you may want something closer to a year’s worth of expenses.
Next, you should be saving for retirement. If your employer has a plan, you should be contributing the maximum amount to it. If your employer does not, there are a few options you can use to set up your own plan. Finally, you may want to look into other routes for investing or have one or more separate funds for medium- and long-term savings goals, such as for buying a home or paying for your child’s college.
Make an Estate Plan
Estate planning is not the most uplifting subject, but it can be a great way of really getting an overview of all your assets and ensuring that your family is taken care of. Another important element of it is having some kind of plan in place in case you are temporarily incapacitated. For example, if you have an accident or a sudden illness that means you cannot communicate your wishes for several weeks, estate planning documents such as a trust or a power of attorney can help ensure that someone can step in to pay bills and make any important financial decisions. You may want to visit an attorney to talk about your best options given where you live and your individual situation.