Many people find it hard to stay on top of personal finances. The process can be time consuming. If you don’t have a background in business, you may not know where to start with your finances. However, monitoring your personal finances can have a huge payoff. Use these tips to make smart decisions, save money and build up your savings.
Everyday spending decisions
The choices you make about your day-to-day spending can add up to a large sum of money. One great way to start is to come up with a monthly spending budget. This doesn’t have to be complicated- you can write this down in a notebook.
Put your after-tax income for the month at the top of the page. For most people, that’s your monthly paycheck total. Next, jot down all of things you spend money on each month. Some items will be easy. Your car payment and home mortgage are probably fixed costs.
The tougher costs to compute are those that are discretionary- spending you can control each month. You decide how much you spend on entertainment, for example. Will you go to the movies once or three times? How much will you spend on coffee each morning?
If you think carefully about these smaller spending decisions, you may be able to save a meaningful amount of money each month.
Using a budget to plan savings
Enlight explains 8 lessons from The Richest Man in Babylon. This book uses parables to explain basic financial concepts. One of those concepts is “Paying Ourselves First”.
This term means that you make it a priority to put a certain dollar amount of savings in your monthly budget. When you get your paycheck, you set aside your savings money first- before you spend on anything else.
Another important aspect of budgeting is managing your personal debt. Here are some important considerations regarding debt:
The unexpected: Sometimes things happen that you don’t expect. A job loss, or an illness that keeps you out of work, can make paying down your debt difficult.
Credit rating: Your credit rating determines how much a lender will loan to you, and what the interest rate will be. The rating is based, in part, on timely debt payments. If you miss debt payments, your credit rating may be damaged.
Paying down extra principal: When you repay a loan, you typically pay both interest on the debt and a portion of the original amount borrowed (the principal). The more principal you pay down, the less total interest you owe over the life of the loan.
Make sure that you can afford to make your debt payments on time. Use your planned savings to make debt payments, if you have a short-term emergency. If possible, pay down principal faster than the loan agreement requires. Tools like this one allow you to calculate how much principal and interest your loan payment requires.
Getting help with tax filings
The federal tax code gets more complicated next year. Townhall explains that the federal tax code is nearly 74,000 pages long, assuming a standard 8 ½ by 11-inch page.
Given this complexity, many people use tax professionals to ensure that their tax filings are accurate. Websites are available that can help you find a cpa. You can review the accountant’s education, experience and areas of expertise. If you need help with taxes, consider seeking out a qualified accountant.
Use all of these tips to get your personal finances on track