The Complete Guide to Managing your Money

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Personal finance is all about your money like budgeting, spending, investing, earning, taxes, etc.

How do you financially prepare for life? How do you deal with unexpected costs?

Sometimes, life just happens. Unexpected costs like breaking your cell phone, or significant health costs are all part of our life. There are things we can’t control and will never be able to prepare. Regardless of the size of expense, be strategic about your finance is a smart decision.

Here are key steps to build long-term financial security!

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Set a goal

Building financial security is multiple tasks. You need to pay off debt, take care of monthly bills, create emergency funds, save for retirement, and so on.

Before you set goals, ask yourself, is it realistic goals? Each individual has a different lifestyle and money cycle. Set goals that fit into your lifestyle, not the one internet suggested.

After writing down your goals, define some milestones and set a timeline. Milestones are still big steps, so break them down into daily actionable steps. Lastly, create a daily to-do list to achieve your goal!

Create a budget

A budget is an estimation of revenue and expenses each month.

One of the famous budgeting methods is the 50/30/20 rule. With this approach, the goal is to spend 50% of your after-tax income on essentials, 30% on wants, and 20% on savings. This budget rule is a simple method that can help you reach your financial goals, but is not realistic for entry-level jobs.

For example, if your after-tax income is $2500 a month:

  • Essentials: $1250
  • Wants: $750
  • Savings: $500

Essentials include housing, food, transportation costs, utility bills, etc. $1250 may not enough to cover all these. In that case, you’ll need to adjust percentages of wants and savings or get gig economy jobs that can boost your income.

Freelancing is another way to boost your income. It’s not quick cash and requires you to have some skills, but potential earnings could help your finance a lot.

When I was living with $1500 a month, I used envelope budgeting. It was really effective way to manage little money wisely.

Build an emergency fund

The emergency fund is like your safety cushion. Many banks and financial experts suggest that you should save anywhere from three to six months of living expenses for unemployment or sudden medical fees.

In the US, MRI on the knee can be $4000 with insurance coverage. Dental implants could be around $5000 for one tooth. Even with insurance, health care is expensive and the cost will keep going up as you age. Emergency fund aka safety cushion will save you from unexpected debt.

Building an emergency fund with a tight budget is tough, so stop focusing on the big end goal. Save $5-$10 each month and build up the fund. The best way to build an emergency fund is to set up automatic savings each month.

I use an online savings bank that typically pays the higher yields for my emergency fund.

Pay off debts

Paying off high-rate debt is one of the best moves of personal finance. The average 17% interest rate charged on unpaid credit card balance is big damage to your financially safe future. Why? If you purchased a $2500 product with a credit card and decided to pay only a minimum payment of $40, you’ll need 155 months to pay it off all. And also, you’ll need to pay an extra 17% a year as interest. What does it mean to you? Your $2500 spending will become $6200 in the end. Send your extra money to the unpaid balance of a credit card or other debts if you can.

The longer you hold the debts, the more you pay the money.

Save for retirement

In most cases, you don’t have a choice of retirement plans. You’ll have to take what your employer offers such as 401(k) or a 403(b). These have tax advantages like reduces your taxable income for the year. If your employer doesn’t offer retirement plans, you can contact a financial institution to determine if they offer IRA or Roth IRA. IRA or Roth IRA is created by the U.S. government to help workers save for retirement. There are a lot of IRA plans, including a traditional IRA, Roth IRA, spousal IRA, rollover IRA, SEP-IRA, and SIMPLE IRA.s

Related Post: No 401(k)? How to Save for Retirement

In addition, a solo 401(k), a SIMPLE IRA, and a SEP IRA are popular retirement plans for self-employed or small business owners.

Grow your money for the long term

If you still have extra money after contributing to the retirement plan above, consider investing in stocks.

The stock market can be volatile at times but delivered higher returns than any other investment. You don’t have to officially become an “investor” to invest in the stock market. In fact, anyone can buy stocks if they have a brokerage account. I use a Fidelity brokerage account because it is beginner-friendly. Some stocks pay dividends which can be your passive income! If you don’t know which stocks you would like to buy, visit my article “Investment Strategy for Lazy People” and learn about ETFs.

Live frugally

I know, it sounds meh to someone.

Some people think being frugal means living stingy, but it’s wrong. Frugal means spend money wisely on the things that matter to you most. The ultimate goal with frugality is to simplify your life to make less financial stress and achieve financial freedom faster. Spend less than you earn. Spend money on the quality of your life instead of impressing others. Here are some tips for frugal living.

Wrapping Up

Managing your money is strongly associated with financial health, which plays a significant role in your quality of life. If you can prepare for unexpected events and also grow your retirement fund patiently, becoming a millionaire is not a dream.

Keep moving forward to your financial goal (: