There are some basic financial tools that you shouldn’t be living without. Learn what those tools are and why you should have them.
Every independent adult should have a budget. It can help you accomplish a lot of important financial goals:
- Organizing monthly expenses
- Tracking spending
- Finding opportunities for savings
- Discovering bad money habits
There is no single way to start a budget. There are multiple methodologies and mediums that can appeal to different personalities and needs. You will have to do your research to find the best fit for you. Maybe you will want to download one of the top budgeting apps so that you can carry your financial guidelines with you everywhere you go. Maybe you’d rather write your budget down on paper and follow the 50-20-30 method, which asks you to dedicate 50% of your earnings to needs, 20% to savings and 30% for wants.
Find the method that appeals to you and give it a test run. If it feels like a good fit, stick with it. If it doesn’t seem to be working after a few months, you should find an alternative.
Some additional tips for following a budget:
- Don’t cut out all non-essentials to save money. You need to acknowledge some spending for the sake of entertainment/enjoyment.
- Make adjustments. Your budget might not be perfect on the first try.
- If you share expenses with other people, you should make a household/shared budget — not a personal budget. This will keep everyone on the same page.
An emergency fund is designed to help you cover urgent and unexpected expenses. If your car stalls in the middle of the road and you need to bring it to a mechanic, you can use the fund to pay for the repairs. If you chip a tooth and need to rush to the dentist, you can use it to pay for the sudden appointment. It’s an ideal solution for situations when your regular budget can’t afford the expense.
How can you build an emergency fund? Dedicate a portion of your budget to emergency savings every month. Take those savings and collect them into a separate savings account. Keep building it until it becomes a substantial safety net.
Some additional tips for making emergency funds:
- Put the savings into a high-yield savings account to help it grow.
- Do not use the funds for non-emergencies. This will undermine your ultimate goal.
- Do your best to replenish the fund every time that you withdraw from it.
A credit card is an incredibly popular financial tool that you should have in your wallet. It allows you to borrow credit up to a pre-approved limit in order to make purchases. After making purchases, you must repay the amount — and over a certain period, you will repay with interest.
Some additional tips for using credit cards:
- If you can’t make a large payment, make the “minimum payment” on your bill. This will help you avoid late fees and penalties.
- Keep your balance far from the limit. The precaution can help you avoid saddling yourself with a heavy debt load or maxing out your card.
- Using a credit card responsibly can improve your credit score. Look at the financial benefits of a high credit score to see why this will work in your favor.
Line of Credit
Credit cards aren’t the only credit tools that you’ll want to have. You should also consider applying for a personal line of credit — this is another open-end credit tool that can use to cover expenses. If you’re approved for a personal line of credit, you could request a withdrawal within your credit limit and have those funds deposited into your bank account.
Some additional tips for using lines of credit:
- Ideally, you should use your line of credit for important payments and emergencies. It can be especially useful when you don’t have enough savings in your emergency fund.
- It’s not designed for everyday expenses. You shouldn’t request a withdrawal when you want to get groceries or pay for a phone bill.
- Once you replenish the balance, you can use the credit all over again.
Credit: Matthew Henry via Burst
A retirement fund is a nest egg that you can rely on in your golden years when you won’t have income from a full-time job. You can use the savings that you collected over the years to support your lifestyle and cover essential expenses like housing, food and healthcare.
Even if you’re nowhere close to retirement age, you should start thinking about saving up for retirement. Starting the process early can help you save up more money for the future.
Some additional tips for making a retirement fund:
- If your employer offers 401(k) matching, find out how much they offer for contributions. You can instantly give your savings a boost.
- Don’t make risky investments in hopes of getting more retirement funds in a short amount of time. This plan could backfire and sabotage your savings.
- Don’t make early withdrawals from your retirement savings. You should leave them alone and let them grow.
Are you missing any of these basic tools? It’s time to fix that! Make sure that you get all of these financial tools in your toolbox.