Where should you start? You want to achieve all sorts of financial goals, but how do you get started? Money management is a complex subject. It can be hard to know where to start. Take a deep breathe if you feel overwhelmed and lost. You can make progress in small, manageable steps. You can improve your financial health by doing 16 simple things.
1. Budget your household finances
creating a budget for your household is the first step to effective money management. To begin, you must determine how much money is coming in each month. After you know your monthly income, arrange your budget according to financial priorities. These include essential living costs, contributions for retirement savings, repayment of debt and lifestyle or entertainment expenses. To reach your financial goals, you need to have a clear idea of how much money comes in and goes out each month.
2. Calculate your net worth
Net worth is simply the sum of all your assets less your liabilities and debts. The result is either a positive number or a negative one. You’re in good shape if the number is positive. If you have a negative number — especially for those who are just starting out, this is common — then you will need to continue paying off debt.
Keep in mind that certain assets like your house count both ways. You may have mortgage debt but it’s secured by your home’s resale price.
Check your credit report
Creditworthiness is determined by your credit history, which includes the interest rates that you pay for loans and credit cards. Your employment and living choices can be affected by your credit history. Every 12 months, you can check your credit report from each of the three major credit bureaus (Experian, TransUnion, and Equifax) for free at annualcreditreport.com. You can also request a report every four months from one credit bureau to keep track of your credit all year long without having to pay for it.
You can stay abreast of all your accounts by regularly checking your credit report.
4. Check your credit score
Your FICO score may range between 300 and 850. The higher your score, the more you will benefit. Two of the most significant factors in determining your credit score include your payment history (especially negative information) and the amount of debt you are carrying. This includes the type of debts and the available credit at the time.
5. Set up a monthly saving amount
When you transfer a certain amount to your savings account each month, you can ensure that you are saving regularly and deliberately for the future. If you wait to see how much money is left after you pay for your lifestyle discretionary expenses, it can result in uneven savings or none at all.
6. Minimum payments on all debts
To maintain a good credit rating, the first step is to not make late payments. Budget your minimum payments for debt reduction. Look for extra money that you can use to pay down your debt principal.
7. Increase your retirement savings rate by 1 percent
Savings and retirement are two of the most important factors that determine your financial success. Save 15 percent of all your earnings for the duration of your career, including any employer matching. Plan ahead to reach your goal if you haven’t yet. You can, for example, increase the amount you save every time that you receive a raise or bonus.
8. Open an IRA
Anyone with an income can use the IRA to save for retirement. (You can’t, however, contribute to a traditional IRA after age 70 1/2.) An IRA is different from a 401(k) because it offers unlimited investment options and does not have any employer attached.
9. Update your account beneficiaries
Some assets, such as retirement accounts and life insurance policies, will be distributed according to the beneficiaries you list on these documents, not necessarily your estate planning documents. You should review them every year, and after any major life events like marriage.
10. Review your employer benefits
Your salary and any employer-provided benefits are included in the monetary value. These extras should be considered as part of your wealth building tools, and you should review them annually. A Flexible Spending Arrangement can be used to pay for your current medical costs through your employer, while a Health Savings Account can be used to pay for future medical expenses. (See also 8 Myths about Health Savings Accounts – Debunked!).
Check your W-4
You can change the W-4 form that you filled out at your first job to determine how much tax your employer will withhold. Adjusting your tax withholdings is a simple way to boost your take-home income if you receive a tax refund. Remember to check this form after a major event in your life, such as a divorce or the birth of a baby.
12. Consider your life insurance needs
If you have dependents, it is likely that you will need life insurance. Consider your assets, debts and retirement costs when determining the amount of insurance you require.
13. FDIC Insurance Coverage
Make sure the banks you choose are FDIC-insured. You’ll need to verify that the credit union is federally insured by the National Credit Union Administration. The federal deposit insurance covers up to $250,000. This is for each bank account. Visit FDIC.gov to determine the coverage of your accounts at one bank or multiple banks.
14. Verify your Social Security Statement
Create an account on SSA.gov for confirmation of your income and work history, and to see what benefits you may be entitled to, including disability and retirement.
15. Set a financial goal for the end of the calendar year.
Financial success requires you to know where your focus should be in order to achieve certain financial goals. For example, a fully-funded emergency fund is an important financial goal.
You can achieve one goal by the end the year if you choose to focus on it. Some examples include paying off a debt, saving $500, and contributing to an IRA.
16. Spending break for one month
You can’t stop paying your bills. But you have full control over your discretionary income. This may be the only option to achieve some of your saving goals. You can cushion your savings or checking account by cutting back on some lifestyle expenses. Start by packing your lunch every day to work or planning your meals for the week. This will help you to save money on your grocery bills and avoid eating out.
