Every financially responsible person needs to concern themselves with personal finances. The control of your personal finances is the key to financial freedom and continued financial health into the future. Here are four areas of personal finances that need your focus for good financial health.
Savings
Many financially responsible people don’t have a savings account or understand the importance of having one. Everyone should have three savings accounts, each for vastly different purposes. The overall purpose of savings is to put money away for a specific reason. The money used for these accounts could come from a budgeted allotment from your paycheck or from a specific source of income meant to fund The Savings account. The three types of savings accounts everyone should have are:
Emergency Fund Savings
The emergency fund savings account is specifically designed to cover you when you have an emergency or a sudden loss of income. Of the three savings accounts, this should be the first one you save before saving for the others. It is suggested that you save at least $1,000 in the immediate future and save at least six months of your income in case of job loss. Many take it even further and cover themselves for 12 months of income.
Retirement Savings
Retirement savings is specifically savings for the future once you retire from the workforce. There are several ways to save for a retirement savings account. You can contribute to your 401(k), you can have part of your income put into a retirement plan, or you can have another income source outside of your paycheck to fund your retirement plan.
Personal Savings
A personal savings account is generally used when saving for a specific item or reason. The most common reasons are to save the college for your children, to purchase a big-ticket item, or for a family vacation. There are several other reasons people may want to save money, which would all be done under a personal savings account.
Planning
many people have a difficult time planning for tomorrow, let alone the distant future financially. However, it is a mistake to neglect planning for your financial freedom and future. While it is strongly suggested that you hire a professional financial planner, you can plan for your financial future.
The first thing you need to do in planning your financial future is to sit down with everyone in your household with a financial stake in the future and discuss and decide on goals. These goals can be household goals as well as individual goals. Once you have these goals in mind, you’ll need to consider sources of income, expenses, and debts. You will then need to adjust or create a budget with your income, expenses, and debts in mind and your financial goals.
Planning this way will give you an overview of your financial situation and help you adjust your budget to accommodate your goals. This will help you and the entire household reach your financial goals and financial freedom and health.
Investing
The average American worker does not give much thought to investing. This could be for several reasons, such as no income to invest with, fear of investing, or lack of knowledge. With technology and so much information readily available on the Internet, the average person should make investment decisions that they will feel comfortable with. There are also many low-cost, low-risk investments that people can make to boost their income, if only slightly.
If you’re looking to make larger investments, you should hire a professional if you have no experience. Figuring out the best investments and how to go about it can be a daunting task, and having a professional on your side will make sure you make sound investments within your loss tolerance if an investment doesn’t work out. Also, an investment expert will be able to help you choose the right investments for you, your income, and your loss tolerance.
Overspending
Overspending is a quite common malady when it comes to personal finances. Almost every financially responsible person at one time or another has overspent and overextended themselves to the point of stress. If this is just an occasional occurrence, there’s nothing to worry about. However, if this is happening every single paycheck that you earn, you have a problem.
Sometimes the overspending is blatant and obvious. You went out and bought something you could not afford. However, more commonly, people overspend and don’t know how they did it because it was in micro amounts. For example, you may make small purchases such as copy or impulse buys while you’re at the grocery store that seems small when, if you did a forensic audit of your finances, you would discover that these added up greatly.
Having a budget will solve this problem. Your budget will give you insight into where you are spending your money if you stay diligent about entering every expenditure. It is suggested that you keep a handwritten diary of everything you spend your money on, including a candy bar at the convenience store. You must get an overview of where your spending money if you are constantly falling short every paycheck.
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