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*This post may include affiliate links. We get a commission if you sign up with a partner; this commission is at no cost to you.(Last Updated On: March 1, 2019)
Many people prefer to go the ostrich route when it comes to managing their finances. They’d rather pretend to ignore obvious loopholes instead of addressing them.
Does this sound like you? It’s a dangerous game to play. One substantial finance related difficulty can leave you in ruins. Here are some effective tips for getting your financial life in shape.
Have a Proper Budget
You need to track your income and expenses effectively. Regardless of your current financial situation, you need to know your incoming and outgoing as it is one of the most effective ways to be financially responsible.
With proper budgeting and analysis, you can see where you are spending too much and what you need to do in order to save some money.
With proper budgeting, you will be able to free up income that can go towards your savings and investments instead of spending impulsively.
There are many budgeting tools on the web today. Put them to good use.
Analyze Your Net Worth Regularly
To know your net worth, subtract your liabilities (money you owe) from your assets.
Having a proper understanding of your net worth is the surest way to know your level from a financial standpoint.
By regularly analyzing and updating your net worth, you can see changes and any progress you make towards set financial goals. Improvements in your net worth could be the motivation you need to stick to your financial goals and objectives.
Keep a Lid on Your Debt
Debt isn’t negative. In fact, planned borrowing, such as overdrafts, have helped many people to improve their finances.
The problem, however, is that many people get into needless debt and get stuck in an endless circle of paying high interest rates. To get your financial life in shape, avoid using payday loans and credit cards without thought. The interest rates can box you into a corner.
An auto loan, your mortgage, and student loans are some examples of positive debt that you can live with. However, you need to have a proper plan to pay them off while ensuring that you never spend more than 36% of your annual income servicing them.
Exercise Caution with Big Purchases
Big purchases like cars or property are minefields that should be navigated carefully for anyone serious about keeping a handle on their finances.
You need to ensure strict adherence to your budget and only making such purchases when you have carefully evaluated the pros and cons.
Create an Emergency Fund
Your emergency fund is money you can dip into when there is a sudden major expense or when you are in between jobs. Finance experts recommend stashing away at least six months’ worth of your living expenses in an account you can easily access if the need arises.
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