Your interest rate can make – or break – your monthly payment. For many of us, buying a car is a necessity. In places where public transit is limited or non-existent, it’s literally the only way to get around. As workers return to the office and find themselves commuting…
Need help managing your money? These personal finance tips can help you get started at any age.
Managing your personal finances is an ongoing, life-long responsibility. That’s true no matter what your finances look like. Whether you’re a college student living on a tight budget or a soon-to-be retiree with an established net worth.
If you prioritize money management, you can open doors to more opportunities. If you neglect it, you might struggle with financial stress down the road. To help you navigate everything from budgeting to the stock market, we’ve outlined 20 helpful personal finance tips.
But first, let’s walk through the building blocks of money.
Core Actions of Personal Finance
Personal finance intimidates a lot of people. That’s understandable because money is a complicated subject. However, it boils down to only a handful of actions.
- Earning: making money from a full-time job, a combination of part-time roles, or other passive sources (e.g., real estate income, dividend income).
- Budgeting: tracking your typical spending habits and setting limits. This helps you reduce your cash outflow, grow financial confidence, and live a sustainable lifestyle.
- Planning: identifying needs and goals, such as buying a house, having life insurance, and retiring. No one can predict the future, but that doesn’t mean you can’t be prepared.
- Saving: setting money aside for needs and goals. By saving money, you can protect against emergencies, pay off debt, and accumulate wealth.
- Investing: strategically putting your money in assets to grow your wealth or generate additional income.
- Living: don’t forget the “personal” side of personal finance. Ultimately, personal finance should empower you to live a more fulfilling and opportune life.
Now, with these core actions in mind, let’s explore various personal financial tips for all stages and walks of life.
Personal Finance Tips For All Ages
At the end of the day, life costs money. We have to pay for housing, utilities, insurance, food, and a host of other expenses. For that reason, it’s important for everyone to understand their monthly expenses and have money set aside for rainy days.
1. Start a budget
Budgeting isn’t the sexiest topic in the world, but it’s a worthwhile activity. It can help you live within your means and reach your financial goals. Plus, it can give you confidence in your purchases. You don’t have to ponder whether you can afford something and potentially suffer buyer’s remorse.
There are a variety of ways to approach budgeting. You could live by the 70/20/10 rule, which divides your take-home pay into three buckets:
- Expenses (70%)
- Savings (20%)
- Debt (10%)
Or the 50/20/30 rule, which is segmented into:
- Needs (50%)
- Savings and/or debt (20%)
- Wants (30%)
If a manual spreadsheet isn’t your cup of tea, you could also explore budgeting apps (e.g., Mint, Quicken).
2. Build an emergency fund
According to a recent survey of 1,000 Americans, 25% of respondents did not have any emergency savings. In other words, a sizable chunk of the population can’t afford surprise expenses like medical bills or major car repairs.
That’s why it’s important to build an emergency fund ASAP.
An emergency fund is a cash reserve for major, unexpected expenses and events. Getting furloughed or laid off is a prime example. An emergency fund would help you stay afloat financially while you search for another job.
The exact amount of your emergency fund is subjective, but it’s typically advised to set aside three to six months of typical expenses. Rather than keep these funds in a checking account, look for a high-yield savings account to maximize compound interest.
Tips for Building Good Financial Habits in College
While you’re in college, your main priority should be learning and getting a degree. However, that doesn’t mean you can’t set yourself up for financial success in the process.
3. Open a credit card (and use it responsibly)
Young adults with proactive parents may already have a credit card. If not, it’s a good time to open a credit account and start using it responsibly. That means making on-time payments and maintaining a lower utilization rate. In turn, you’ll be on your way to good credit.
Your credit score significantly influences your access to debt, such as car loans, mortgages, and personal loans. On top of that, your credit history can also impact your ability to get an apartment.
4. Consider a side hustle
Speaking from experience, your late teens and early twenties are ideal times to consider alternative career paths. Even if you wind up taking a traditional corporate route, you could still experiment with a side hustle.
You aren’t handcuffed to any decisions. Who knows, you may just stumble across your ideal career and create a small business.
5. Develop your financial literacy
Depending on your financial situation, you might have limited life responsibilities while you’re in college. So, it’s not a bad time to think ahead and invest in your financial education too.
That means learning about basic concepts, such as bank accounts, assets, and liabilities. Or certain financial topics like life insurance, taxes, and real estate. (Of course, reading this article is a good first step.)
Tips for Repaying Debt
6. Pay down your most expensive debt first
One debt repayment approach is to pay off your loans with the highest interest rates first. In the personal finance world, this is known as the debt avalanche or avalanche method. It’s typically the most cost-effective approach because you can reduce your total interest costs.
7. Pay down your smallest debt first
You can also take a different approach and pay off your smallest debt balances first. This method is known as the debt snowball or snowball method. It might lead to higher total interest payments, but it helps build financial confidence.
8. Cut back on unnecessary purchases (at least temporarily)
The simplest way to speed up the debt repayment process is to cut back on unnecessary purchases and apply savings to your balances.
Your budget can come in handy here. Look for areas of overspending. Do you have any subscriptions you haven’t used in a while? Maybe you’re spending a bit too much on candles. Whatever it is, consider taking a temporary break from this activity or item.
9. Refinance your auto loan
If your monthly car payments are taking a chunk out of your income, you could unlock extra cash by refinancing your auto loan. According to RateGenius data, the average auto loan borrower cut their interest rate by 5.5% in 2020. If you qualify, you could apply your loan savings to your other balances to fast track your way to financial freedom.
Tips for Beginning to Invest
Investing can seem like a daunting activity to learn about, especially for beginners. Fortunately, financial apps make investing more accessible than ever before. (The pandemic proved that.) Let’s walk through a few tips for getting started.
10. List specific life goals
Sure, we invest to hopefully make more money. But money isn’t the end goal. It’s the means to an end. Before you invest, make a list of your financial life goals and when you expect to accomplish them. For many people, that includes buying a house, paying for childcare, traveling, and retiring.
11. Understand your risk tolerance
If you’re going to invest, you need to understand risk. More specifically, your tolerance for it. There’s no such thing as a risk-free investment. So, if you want to invest, you have to be willing to take some degree of risk. There are online questionnaires to help you estimate your risk tolerance. Or you could also speak with a financial advisor to learn more.
12. Consider these investing apps
Self-directed investing is a challenge and a major time commitment. Working with a financial advisor can solve that problem, but it’s not the only solution. You could offload specific investment decisions to a robo-advisory firm like Wealthfront or Betterment. These platforms are a cost-effective alternative to traditional advisory services.
Tips for Buying Your First House
If you’re shopping for your first home, congratulations! You’re able to spend a lot of money. All kidding aside, buying a house is likely the largest purchase you’ll ever make. So, here are three tips for handling the process.
13. Shop around for the best house and loan
Compare different houses and neighborhoods. You might find a better deal in an equally appealing location. The same goes for shopping for different lenders. Shaving a percentage point off of your mortgage could save you a considerable amount of money in the long run.
14. Don’t skip the inspection
In a hot housing market, it can be tempting for buyers to skip the inspection to get in the good graces of the seller. However, this is an egregious mistake. Many homebuyers have found themselves in a financial hole after neglecting to look behind the walls and underneath the floorboards.
15. Use a down payment to avoid PMI
Putting more money down on a house can save money in the long run. That’s partly due to interest savings. The bigger your down payment, the less interest you pay over time. But there’s another wrinkle. Depending on the size of your down payment, you could avoid private mortgage insurance (PMI).
PMI can cost hundreds of dollars a month and it’s typically required for conventional mortgages. It protects your lender if you stop making loan payments. But if you can manage a 20% down payment, you aren’t required to pay for PMI.
Tips for Retirement Planning
Many people daydream about retiring one day. But if you aren’t financially prepared, that dream will stay a dream. Here are four personal finance tips for retirement planning.
16. Maximize your 401k benefits
According to a recent survey, 63% of Americans didn’t fully understand the concept of a 401k. As a result, there’s a good chance many of them are losing out on free money from their company.
A 401k is similar to an individual retirement account (IRA). It has tax advantages and it houses some of your retirement savings. The key difference is that it’s sponsored by your employer. At your discretion, you can allocate a percentage of your paychecks to your 401k. (Keep in mind, there are caps on how much you can contribute to your retirement accounts in any given year.)
Many companies offer to match your contributions up to a certain percentage. So, you’re essentially leaving free money on the table if you don’t take advantage of this common company benefit.
17. Determine your retirement lifestyle
The idea of retirement has shifted quite drastically over the years. It’s not uncommon for “retirees” to continue working in some capacity. You might shift to a less time-intensive position or more fulfilling occupation.
As you approach retirement, it’s important to weigh your options from a financial perspective. Do you need to keep working to support your desired lifestyle? How long could you live off your investments at your current rate? Consider speaking with an advisor to answer these questions.
18. Plan your estate
Life can throw us curveballs. So, it’s wise to prepare for even the most extreme scenarios. That’s why it’s never too early to plan your estate. Your estate plan should document your wishes and potentially involve trusts. That said, consider speaking with a legal or financial advisor to ensure you’ve covered your bases.
19. Ensure you have proper health care
You could argue that anyone at any age should have a sufficient health insurance policy. However, as you approach retirement, it’s even more vital to have your medical coverage sorted out. Will you rely on your significant other’s policy? Do you qualify for a government-sponsored plan? It’s better to start asking these questions sooner rather than later.
One Last Personal Finance Tip
Personal finance is as much about money as it is about commitment and self-discipline. That’s why our final tip falls under the “personal” side of personal finance: it’s okay to be human.
Sometimes, we spend more than our budget allows. Other times, we procrastinate and neglect financial planning. These mistakes happen. The important thing is acknowledging them and learning from the process. If you can do that, you’ll be well on your way to financial freedom.