Now that 2020 is behind us, we have a chance to start over and build better habits. Because the previous year was filled with much anxiety about finances and job security for many, one of the things you’re probably eager to start on is to be smarter about managing your money.
Below is a list of simple plans and habits to start this year with less debt and more savings.
Save, save, save
No matter what’s happening in your life, you should always set aside some money for your savings. Even when you’re in debt, experts still recommend that you save money — don’t wait until you’ve eliminated your debts to save. ;
Take advantage of having fewer expenses while the lockdown is ongoing. You no longer need to commute, so save your gas money or your bus ticket money for a rainy day.
Research has found that only 23 percent of Americans have an emergency fund to cover six months of expenses. Another reason it’s important to save is so that you can have an emergency fund. If you’re prepared for the worst, the worst won’t happen. ;
What do you do with the money you have, apart from saving it? Put it in a place where it will grow over time. Experts often advise that you start building your investment portfolio while you’re in your 20s. This is because even if the stocks plunge, you’ll have plenty of time to recover. One of the things you should also do as early as your 20s is set up a retirement fund. Sign up for your company’s 401(k). ;
Something else you should invest in is insurance. If you’re a pet owner, you should also consider investing in pet insurance. Buying insurance is something that often requires a lot of thought, so make sure to do your research. Take the time to look through websites for insurance brokers to get the best deals you can find.
Set a budget
Cut back on your spending. Much like a new year’s resolution to lose weight and eat healthier, it’s time for you to cut the fat from your budget. And just like a diet, this will prove to be a test of your self-control. ;
Before you make any purchases, think about them in terms of cost per wear or cost per use. Will you use this product or service enough that it will get you your money’s worth? Are there more affordable alternatives on the market?
Make sure to cut out recurring charges such as monthly bill payments that you don’t need or even use. These could include extra video or music streaming services and magazine subscriptions. ;
Budgeting — and dealing with finances in general — is made easier when you track your expenses. You don’t need to hire an accountant to do this; you can save meeting with one for when you have some difficulty with your tax situation or other more complex financial issues. Instead, you can use accounting software such as QuickBooks, which is also an excellent tool for small business owners.
Manage your credit card expenses
Nearly half of Americans are in credit card debt. Poor debt management and budgeting are signs of financial illiteracy. The reason for this high statistic might be because many Americans don’t fully understand how credit works.
Your credit card usage affects your credit score, which determines the interest rates you’ll get when you apply for loans. To keep your credit score good, avoid making big purchases on your credit card. Expenses you should think twice about putting on your credit card include essential ones such as your rent or mortgage, taxes, and medical bills. Experts say that you should use up less than 30 percent of your credit card limit. Apart from that, make sure to pay your credit card bills on time.
If you have a credit card that you don’t use, should you close it? While using your credit card responsibly — and modestly — is key to maintaining a good credit score, closing your account might hurt your credit score. This is because closing an account will be erased from your credit history, which could lower your score. ;
But be wary of having too many credit cards, as this can also lower your credit score. And if you’re already in debt, applying for more credit cards isn’t a good idea. You’d risk hurting your credit score and incurring even more debt.
Like it or not, money controls many aspects of our lives, so it’s important to be smart about managing it. This means understanding where your money is going and also whether it’s growing. Make sure to track your finances — particularly those spent on your credit accounts. Set up an emergency fund that can last you for up to 6 months and start investing while you’re young. Like many other good habits, the fruits of money-saving will take time to harvest but will be even sweeter for it.