Overcoming financial challenges can be very difficult. Often, debt leads to more debt and it can seem impossible to meet your monthly expenses and save for the future. While a lottery lump sum payment would be welcome, you can get out of debt yourself by learning to manage your finances. Follow these tried and true principles to use your own earning power and self-discipline to transform your financial situation:
Create A Budget
A budget is key to effective financial management. Without a budget, it’s easy to forget about necessary expenses and saving. However, with the myriad of expenses and debts that the modern adult accumulates, this can mean that you’ll have no money left over to spare, or owe money at the end of the month.
A budget can help. First, calculate the money you earn in a month. Then divide it into categories: fixed costs should be the majority of your budget, then savings and guilt free spending money should comprise the rest. Adjust and add more categories for your personal situation — maybe 5% a month goes to your student loans, or 10% to investments.
Learn To Use Credit Cards — Without Going Into Debt
Credit cards are extremely useful tools, especially for people who don’t get paid every week, but in many ways they are a recipe for disaster. The average household carries $15,355 in credit card debt, which can seriously hurt your credit score and ability to save and earn if unattended to. The average home has 13 cards and the average consumer has 3.5 credit cards — often using one to pay off the other.
Before you get a credit card, educate yourself about their policies and late fees. Don’t think of a credit card as cash. If there’s an $1,000 limit on your card, remember that you’ll have to pay back that money. Stick to your budget and try to think of your credit card only as a way to build yourself better credit, and therefore more financial accountability.
For those rainy days where all else fails, for big investments and expenses like school tuition for you or your kids, for big ticket items that you don’t want take out loans for — these are just some the reasons, besides retirement, why saving is important. Saving consistently also helps with the maintenance of your budget. Knowing exactly where some of your monthly money is going will help make sure the rest of it is going where you allotted it originally.
Learning ways to reduce debt, and manage your finances in many ways requires a serious change in lifestyle. Remind yourself of the freedom offered by financial independence, and embrace the mindset while you embrace your budget.