Congratulations! You’re no longer a part of the 78% of Americans who live paycheck to paycheck.
But now what? Does the extra cash mean you don’t have to worry about your finances anymore? No — in fact, having more money means you should put even more effort into your personal finances.
You’ve managed to make ends meet thus far, but you’ve never had quite enough cash to save — until now. Keep reading to learn all about managing your personal finances.
Create a Budget
The single best way to manage your money, no matter how much money you have, is to create a budget.
Start by printing off your bank statements from the last few months. Add up all your purchases based on categories, such as money spent on groceries or clothing. This will give you a good starting point for how much to budget for different items.
Then, take your total monthly income and subtract your category amounts. Start with the necessary items, like utilities and mortgage, before accounting for fun or unnecessary categories.
Remember to include your savings, investments, and any reoccurring donations.
Throughout the month, check back in with your spending and budget to make sure you’re staying on track. If you’ve never used a budget before, it can take a few months until you get the hang of it. Don’t give up if your first few months are a budgeting mess.
Pay Off Debt
Paying off debt is one of the money management strategies to ensure your personal finances stay in the green. Your monthly income is your biggest financial tool, but if you have a lot of monthly debt payments your income can disappear quickly.
If you’re not careful, you’ll find yourself living paycheck to paycheck again. Use the extra money to eliminate your debt.
We suggest trying out the “snowball method.” This involves focusing on your smallest debt first. Throw any extra money you can at this debt each month.
As you pay off your smaller debts, you’ll find yourself able to make larger payments on your next day — increasing your snowball potential. After a little work, your snowball will grow bigger and bigger!
Freeing up your debt provides you with even more investing potential each month. The less you’re spending on debt payments, the larger your money can grow.
Invest in Your Net Worth
Managing personal finances involves a lot of investing, but what exactly should you be investing your money in? We suggest investing in ways that increase your overall net worth.
Examples of this include realty property, stocks, and even bank accounts with large amounts of cash. Each of these adds significantly to your net worth.
But not every investment is a good one when it comes to your net worth. If you want to invest in your net worth, you should avoid blowing a lot of your newfound cash on vehicles. In the first year of ownership, a car can lose up to 20% of its value and after that, it loses around 10% annually.
You want to make sure you’re investing in assets that increase in value over time. This will ensure your net worth continues to grow without effort from you.
Save for Retirement
Investing in your net worth is great, but don’t forget to invest in your retirement at the same time. While a bigger house is nice, it’s not enjoyable if you need to work until you’re 80 in order to afford it.
When you save for retirement, aim to save enough so you can replace at least 80% of your current income.
First, increase your contributions to your 401(k) or Roth IRA. Your employer may offer a match for your 401(K), which means even more money for your retirement. And a Roth IRA is great because they offer tax-free withdrawals.
But, these both have limits of how much you can contribute annually. If you’ve reached your limit but aren’t yet at 15% of your income, look at other investing avenues.
Create a Will
Now that you have money and assets, it’s time to create a Will if you haven’t already.
You’ve worked hard your whole life to build up your wealth, and you want to make sure your family uses it wisely after you pass. Designate a certain percentage to different family members and friends.
Also, don’t forget to add in any donations you wish to make upon your death. Getting these things in writing will ensure they are carried out.
When you’re dealing with significant assets, we recommend consulting a lawyer to help create your Will.
Hire a Financial Planner
Despite all these tips, personal financial management can be intimidating and confusing if you’ve always lived paycheck to paycheck. You may not know how to even begin thinking about investing to get the best return on your money. In this case, it’s helpful to enlist the help of a financial planner.
A financial planner is someone certified and knowledgable to help you reach your financial goals. They’ll sit down with you and learn about all your financial details. From there, they’ll create a financial plan to help you reach your goals.
Most financial planners take care of the leg work for you.
They’ll move your money around and invest it for the best-growing opportunities. Then, they’ll collect a small percentage of your earnings as their payment. So the better they manage your finances, the more money they’ll make.
Research and find a few financial planning companies in your area. Sit down with several planners and interview them before choosing the one that’s right for you. Learn about their investing philosophies and get an idea of how they conduct their work.
More Tips for Managing Your Personal Finances
Just because you suddenly have extra cash that doesn’t mean you can ignore managing your personal finances. If you were unable to handle your personal finances before you came into money, receiving that large raise or chunk of inheritance won’t change that.
Instead, become proactive by embracing these tips. Not many people become rich on accident. Instead, it takes determination, self-control, and a plan to become wealthy.
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