Let’s talk financial management 101 and really focus on these seven tips that have helped so many to stay out of the red!
When you look at your bank statement, are you seeing freedom or red? Do you have enough disposable cash to buy yourself a present, or has debt consumed your life? If life gets to that point, it can be challenging to figure out what to do, let alone where to even start to tackle your debt.
Wouldn’t it be nice to have a life cheat sheet to get you through the difficult financial moments?
Financial Management 101: Staying Out of the Red
Although not every tip or life hack is suitable for every situation, many financial management tips could be precisely what you need. To help you get out, and stay out of the red, here’s a little financial management 101 that can generally help anyone.
Understand You Can Reach Financial Freedom
First things first, you need to understand what financial freedom is and that you can achieve it. Living financially free is more than having a savings account. It means having enough money that you could change careers, start your own business, or do basically anything you want without heading straight back into debt.
Living your life without having to worry about money and what you can afford is possible. However, if you don’t believe you can attain it, chances are you won’t.
Understanding financial freedom also means buckling down and doing the work that is needed. If you are unwilling to make the necessary sacrifices and stay dedicated to a budget, it will be tough to get yourself out of debt.
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Financial freedom is only limited by your ambition. You have to want to obtain it.
Do the Research
You won’t make it very far in your journey to financial freedom if you have no clue what you are doing. Sometimes all you need is the basic knowledge to create a budget and live life frugally.
Other methods, like investments, may require a bit more research. Either way, if you don’t know what to do, it’s easy to get nervous and intimidated by finances and give up.
Fortunately for you, there are tons of resources readily available that you should utilize to help. Financial blogs, books, seminars, there is something in every form that will teach you about finances and paying down debt.
Learn How to Save Money
Part of managing your finances and getting out of debt is to save money. When you save money, you create a nest or a cushion to fall back on if things go south. The additional money you save can also go into investments and high-interest savings accounts that can earn you interest over time. However, you need to know how to save money for this to happen.
There are many tips and cheats to help you save money as quickly as possible. From comparing prices at the grocery store and keeping track of your expenses to doing things yourself rather than paying for it, all of these saving tips will get you on the right path.
Cut Your Expenses
The other part of managing your finances is to get your expenses under control. If you are spending more money than you earn each month, all you’ll do is dig yourself deeper into debt. You need to earn more than you spend and cutting your expenses (or make more money) will be the key.
You’re best to start with a budget. Your first month or so won’t be easy as you are tracking your expenses to see where your money goes. Once you have a solid idea, then you can cut categories and see where you can reduce your spending. Budgets aren’t always the most fun and exciting thing to do, but they can seriously be the key to getting yourself out of debt.
Stop Paying Just the Minimum
Take a look at your recent loan and credit card payments. Are you only putting down the minimum amount required? If you are, you’re just scraping the surface of your debt, and it will take a lot longer to pay everything off. Why? One word – interest.
Each month you have outstanding debt, interest gets tacked on to the total. That interest adds up quickly over time. In some instances, you could be paying thousands of dollars more just from the interest alone.
When you make only the monthly minimum payment, you’re basically paying off the interest with a little bit going to the loan. Do yourself a favor and tack on a few extra bucks to your monthly payments.
Work on Highest Interest Debt First
Since the interest on debt can cost you more and more money each month, it is smart to tackle the debt that has the highest interest. That doesn’t mean you neglect any other debt payments you may have. Put smaller amounts on those and make more significant payments on the most expensive debt.
Once you pay off the most expensive debt, all that money can now go to the next highest interest debt. It will turn into a snowball effect since when one debt is paid off, all that money goes to the next one and so on. You’re likely to pay the loans off and reach financial freedom more quickly.
Make an Emergency Fund
When you’re working towards financial freedom, you might think you need to throw all your money towards the debt and nothing else. Take a moment and imagine an emergency hit. Would it throw you even further into debt, or could you scrape by with your savings?
While you pay off credit cards and loans, you should also be stashing away a bit of money each month for an emergency fund. Depending on your circumstances, you may need only a little bit or a lot. It may be tempting to take that money and invest it or put it towards your credit card, but if you lost your primary income, could you make ends meet?
An emergency fund is there in case of an emergency. If the time comes you need it, you’ll be thankful you created one.
Start taking control of your finances now so you can enjoy the rewards later in life. It won’t always be easy, but the more you research and follow what you learn, the better you will become. Financial freedom is possible; it’s time to put in the work.