Manage Money for Future Saving
How to manage, spend and invest their money can have a profound impact on his life, however, very few schools teach these important skills. Learn financial knowledge can take a while, but the basics are fairly simple and never changes. This is where to start.
Probably they were taught some basic math grow, but many people do it all the way to adulthood without having to learn basic money management. Skills such as creating a budget, investment for the future, or even how credit cards work are surprisingly rare skills. If you are in need of a Money 101, we will cover the basics for beginners, while also giving you the resources you need to learn more.
The golden rules of personal finance
Financial Management feels like nothing more than a pile of papers and numbers. Make X amount of dollars, the amount spent and, and try to ensure Y is less than X. However, their finances are so much psychology, habits, and values you choose to live. In other words, their thinking is as important as mathematics.
Underneath all the software and budgets, there are some rules that will always help improve your financial life:
- Spend less money than you make: If you win $ 30,000 / year and spends $ 31,000 / year, which will end up in a debt spiral that is difficult to get away from. If you spend exactly the same winning every year, it will never be prepared for emergencies or major changes in life. Spend less than you earn allows you the freedom to save, to prepare for the future and deal with the inevitable crises that life throws at you. The bigger the gap between their income and expenses, the better.
- Always plan for the future: This not only means the removal. When a store offers for you to pay any device in 6 months without interest, you need to know that you can afford, or avoid such treatment. The establishment of an emergency fund will allow you to deal with car repairs or unexpected medical bills. Having a plan ensures retirement income when you can not work anymore. Your finances should always look ahead beyond the current month.
- Make your money earning more money: You want to know how the rich get richer? It is because money can grow while sleeping, always keep some of it. Properly invested money earns more money over time. Do not just sock away all your money in a low-interest savings account. Invest in things that will earn you more money than you had before. Sometimes that’s an investment account, but sometimes you start a business or even get an education to get a better paying job.
The rules of most important personal finances do not change. Whatever your grandparents may not work for you. There will always be new and better tools to manage their money. However, spend less than you earn will always be beneficial. Investing your money is always better than doing nothing with it. And planning for the future will always be better than blowing your paycheck as soon as you receive it.
Finding a bank account
It is neither safe nor advisable to keep all your money under the mattress. You need some kind of account to save your spending money and short-term savings. A bank (or credit) can keep your money and allow you to access it with an ATM / debit cards. Creating an account is easy. Generally, you can apply online or go to a branch, ask a teller to open an account and guide you through the process. Choosing a bank is more difficult.
Picking up a bank means finding an institution that has the services you need with fewer fees. Common services include debit cards, ATM access (or at least refinancing fees for using ATMs of other banks), paper checks and a website where you can see the balance of your account. While some banks charge monthly fees or require you to have a minimum balance, there are plenty of banks that are worth without any of these requirements. We have discussed what to look for in a bank here.
It is likely that most adults in their lives have recommendations on what bank of your choice. However, if you can not get a decent suggestion, the FDIC has here a tool that can be used to search insured banks in your area. The site can be found branches near you, and give you links to company websites when available. NerdWallet also has a great online tool that compares here checking accounts from a variety of banks.
Of course, keep in mind that not all banks have physical branches. Some just like banks, Ally, or Capital One 360 are only online. These often come with certain advantages and disadvantages (like, you know, has no physical branches), but many offer fewer fees and better services. also typically offer better interest rates intentioned saving money earn a little extra money just to keep it in mind that traditional banks because they do not have as many operational costs associated with physical buildings.
Once you have decided on a bank, or enter a local branch or visit the company and request the opening of a new account. You will need to provide basic forms of identification, including name, social security number, date of birth, and some form of photo identification such as a driver’s license to prove that you are who you say you are. You can check with the bank you want to get specific information.
If you are still not sure which bank to go with, do not worry too much. Most banks generally offer similar services and if you decide you do not like one, you can always switch to another. Here are some more resources to help determine what to look for and make the best choice:
Set a budget
Do you know where your money goes, or does it just kind of disappear from your account? A budget, even a basic, barebones alone is one of the best ways to ensure that you are spending less than you make, and start early is important. When you’re young and his career is new, it does not have much money. Getting into the habit of categorizing your accounts and track your spending will help prevent many financial problems before they start. If you’re doing a budget for the first time, it may be easier to start with paper, a pen and a calculator, but we’ll get to more advanced tools that can be used in a while.
To begin with, the calculation of the amount of money you earn in a month. If you are paid hourly, multiply your salary by the typical number of hours worked each month. Then, write down all your regular expenses. This includes recurring costs, such as rent or mortgage, utilities, car payments, and so on. For more complex things like food, you may need to keep track of what you spend time. Collect receipts for the past few weeks, or use the transaction history of your bank if the paperwork is not his thing. If you can not get a precise number, estimated in the meantime. Then keep track of all your expenses for the next month or two. At the end of each month, add it all up to see how much is being spent in each category.
Ideally, the amount you spend in a month must be less than the amount you earn. If not, start going over your list and see what expenses can be reduced until it appears. If necessary, cut mercilessly. For some, it can be as easy as cutting out those lattes, but for others, it may have some big decisions to make, such as whether you can afford to live in this expensive city.
Once you get the hang of tracking your spending, you can try using a service like Mint to handle it for you. Connect your bank account and automatically label your transactions, so you can easily see how much is being spent on bills, grocery stores, restaurants, shops and other categories. You can also use it to set budgets for different things like groceries or entertainment and receive notification when being reviewed. You can read more about using mint with our guide for beginners.
So we got in the habit of tracking your spending, and now is the time to create that budget. There are some different philosophies here. Some people prefer to have a history of very detailed strict allocations for expenses such as food, clothing and entertainment transactions. Others, such as the financial expert Ramit Sethi, believe that being too strict not work. Instead, Sethi suggests dividing your money into four categories:
- Fixed costs (50-60%): This should include all costs that you know is coming every month, which rarely changes. That means the rent, gas, energy, food, your mobile phone bill, and anything else that usually stays the same. Some of these may vary slightly from one month to another, but are at least somewhat predictable, and are necessary for normal life.
- Investments (10%): As you build your savings (of which later), which eventually will want to invest some of their money so it grows with time. If you have any investments as a company 401 (k) coming out of your paycheck, you can count here.
- Savings (5-10%): saving short and long term should go in this category. This includes saving for the holidays, gifts or large purchases such as a new TV or computer. It should also include an emergency fund, which is only a block money you have in a savings account for unexpected emergencies like car repairs or sudden bills in this category.
- Guilt free spending (20-35%): This category is where you can put whatever you want. Dining out, drinking, or splurge on entertainment is often seen as a financial vice, but the truth is, we do these things because they like. As long as you have the other three categories covers may spend this money without feeling guilty about your budget.
Those are the recommendations of Sethi for young people, but can (and should) adjust the percentages depending on your age, your financial goals, and what you consider important. Remember that the more you save, the more money you will have later to buy a house, retire early, or achieve other objectives. (We’ll discuss this more in a moment.)
Ultimately, the budget only means knowing where your money goes and plan ahead. If you do not want to go to the trouble of writing every penny you spend at the pump, this model is still suitable for most of what needs to budget. The only thing to decide is how much to put in each category. We have included Sethi recommended percentages as a guide, but you can adjust as needed. If you can not afford to save or invest 10% of their income after expenses, save what you can. You can also add more to your savings rather than forcing yourself to spend 20% of their budget on the guilty pleasures. The more you can save, the better!
There is no shortage of personal finance tools to help you manage your budget. Here are some more resources to Check Out:
How to use credit cards without going into debt
Despite how easy it is to get a credit card, it is also easy to become overwhelmed and end up owing too much money. This type of debt that you can put in a hole that is difficult to leave. However, credit cards can also be really useful when used correctly. Here’s the short version: Do not use a credit card to buy things they could not afford otherwise. Instead, only buy something if you have the money in your account at this time, and pay the balance on your card each month.
If that is all it takes to this section, which is already ahead of most people. Here’s how it works crux of the matter, however: the credit card companies will give you a certain amount of money, known as “credit”, ie you can spend without paying again immediately. If you do not repay the money by paying your credit card bill at the end of the month, you do not have to pay anything extra. In fact, you may even give rewards for doing so.
If you do not pay, the credit card company will begin charging extra money, known as interest. Interest is usually stated as an annual percentage rate (APR), but that’s a bit misleading because it is calculated based on each day, not for years. Each month, the company will charge interest last month in the balance is carrying. What this means is that every month not pays what you owe, they charge more money.
Worse, you have to pay the interest on the first (or your balance is just getting above). If you only pay the minimum amount due, most of your payment will go to interest. This means that your balance will remain high, and continue to generate interest. We break down the calculations in more detail here, but the bottom line is, you only pay the minimum amount due is the worst thing you can do. Even if you can not afford to pay the entire balance in a month, at least pay more than the minimum.
So if only supposed to pay for what you can afford, then what is the point of having a credit card instead of a debit card? Well, when used correctly, there are some key advantages:
- You can earn rewards: Most credit cards come with different types of rewards based on what you spend. It could be cash back, it could be airline miles, hotel points, or even Amazon gift cards. This is done to try to spend more money, which can be problematic if you have difficulty controlling their expenses. However, with a disciplined budget, which is basically like getting free to go about your daily life money.
- Which is protected against fraud: Sometimes a bank will offer to repay the debit card purchases, but for the most part, are treated as cash. Credit cards, however, are fully protected, so you are never responsible if someone steals your card and goes shopping. If you see charges on your bill that did not (or if you lose your card), you can call the company and can get those charges revoked.
- You can get protection for all types of purchases: Hidden in the fine print of many credit card agreements is some of the sweet features that protect your purchases. Many cards extended warranties are offered on items larger price, such as televisions (which is another reason why you should not pay for them through the store) protection against damage to your cell phone if you pay your monthly bill with your card credit, or travel insurance if you lose your valuables on a flight paid with your card. Your credit card may have a lot of benefits that are not immediately apparent, so check your contract.
Credit cards can be very useful tools for a properly planned budget, but can also be destructive if not used carefully. Try not to think of them as extra cash. Having a credit limit of $ 1000 does not mean that you have $ 1,000 to spend. This means you can borrow $ 1,000 for one month. If you can learn to use credit cards responsibly, they can be immensely helpful. If you can not, however, avoid the temptation entirely by them out of their portfolio, or even destroy the physical card, if necessary.
You can find more information about using your credit card effectively without ruining your budget here:
How your credit score works
Credit cards are also useful to improve your credit score. Typically, banks do not like to hand out money without some sort of guarantee that they will be paid. Thus, many financial companies created what is called a “credit score.” It is essentially a report detailing its history to borrow money and calculates how likely it is to pay the money back. Financial institutions use this score to determine the amount you can borrow, how much will be charged in interest, and the number of lines of credit (such as credit cards, car loans or mortgages) that can be opened. The better your credit score, the best credit cards you will be able to get, and the best loans you will be able to get a house or a car, and even to measure what type of cellular plan holder can obtain or you have to make a deposit into their profits. In some cases, your credit score can still be used by owners to determine whether or you can not rent an apartment in the certain complex. In other words, your credit score can have a profound impact on your life.
You not only have a credit rating, either. It has several. There are three major credit bureaus nationwide normally used to measure credit. By law, you are allowed to pull your own credit report from one of the three bureaus once every twelve months without affecting your credit history. However, you should not need to pay anything to control your credit score.
When launched for the first time in life, you will have no credit score, which can make it difficult to get new credit (a classic catch-22). If you’ve been with a bank for a while, you may get a credit card low limit that can be used to start building credit. You can also get what is called a credit card secured, which is similar to a regular card, except that it is paid in advance. Really it is not very much like a credit card at all, but it has positive significance to your credit score. Payment of profits over time will also help build your credit.
Credit reporting agencies will the degree of a variety of factors. The exact mathematical depends on the agency, but generally speaking, there are five main areas that affect your credit score:
- Payment history: Pay your bills on time is typically the largest portion of your credit score. The more time passes without having to pay at least the minimum due, the worse it gets. No matter what kind of credit is, always I try to pay at least the minimum (or more if possible.)
- Debt to credit ratio: Simply put, this is the amount of money that is currently paid by all accounts, compared to the amount you are allowed to borrow in total. This is the second most important in determining your credit score factor. If all of your credit cards have a combined limit of $ 5,000 and you owe $ 4,500 to their proportion is 90%. This is bad. An ideal number is around 30% of your total available credit. You do not want it to be zero because then you’re not building credit at all. However, the farther beyond 30% can be obtained, plus the agency sees you as a risk.
- The length of Credit History: The longer you have open lines of credit, the better for your score. If you have paid off a credit card, do not close the match. Use at least one recurring charge to keep it active, and is paid each month.
- Types of Credit: The mix of credit accounts have can also benefit your score. If you have $ 25,000 in available credit on credit cards, which can be seen as more of a risk than if you have a loan of $ 15,000 car, $ 8,000 in credit cards and $ 2,000 in installment loans (such as furniture or cell phones). This is usually fairly easy to handle, provided you do not do something reckless like buying a car with a credit card.
- Credit checks: Every time you try to open a new credit line that the application is registered with the agency reports. More credit checks usually mean more of a risk (because they assume or are borrowing too much or has been rejected too many times). However, it is not an exception. Multiple credit checks related, such as buying a car, applying for an apartment, and applying for student loans are often treated as a single application if done within a period of 45 days. Life changes often require multiple credit checks, so it is taken into account. Just do not try to open three credit cards in a year.
If you manage your finances well, usually, you should not have to do much to manage your credit account. Like running water, usually, only it becomes a headache when something goes wrong. If you end up with black marks on your record that keeps your score down, there is usually something you can do. Although in some cases, it may mean to wait some negative marks disappear from your record after several years. In most cases, the best thing you can do for your credit score is to start paying the debt and make payments on time.
Review these resources to understand help you understand your credit score, resolve disputes and manage your credit over time.
How to save for the future
Therefore, it has begun to budget your money, credit is building, and you’re spending less than you earn. Perhaps it has taken a couple of months but finally are in control of your finances. Great! Now comes the next part: save for the future. If you’re like I used to be, you probably have not thought much about the future. It seems too far away to matter, or perhaps feels impossible and overwhelming. However, the earlier you start saving, the more money you will have later in life and invest less effort than trying to come later.
For starters, you remember those sections in your budget that you made earlier called savings and investments? To begin with, saving save automatically. If your employer uses direct deposit (which means your money goes directly to your bank account, instead of giving a check can be charged), you can request that a portion of your paycheck sent to multiple accounts. You can use this to send money to a separate savings account that you do not have a debit card, or it is not easy to transfer your regular checking account. The money never has access to is the easiest to keep. Even if you can not establish a whole pieces side of your paycheck, services like acorns can round out their nearest daily dollar purchases and automatically save the difference.
Having your money in a savings account will help you save for small things, like your emergency fund or a new computer. But their real savings, long term go towards something much more important: retirement. Yes, one day, will have to stop working, and you need a lot of savings to keep playing in their golden years and a small savings account is not the best way to do it. That’s where investments come in. If you can put your savings into some fairly simple, low-risk investments that will make money for you while you sleep and during the years and decades, that can add up to a lot. This is the way to save enough to retire one day.
The investment does not have to be complicated either does not mean picking winning stocks or timing the market. If you’re just starting out, you can use a service “robot-adviser” as Improvement or Wealthfront to do it all automatically. It will guide you through the process of creating an investment plan based on your age preferences, goals, and risk. Then automatically it charged that companies or industries they invest in. For more hands, more detailed tools for managing their investments here.
long-term investments can also come from your employer. Many companies offer 401 s (k) that can be funded with money deducted from your paycheck before taxes. In many cases, employers also match the amount you contribute, which means it literally gets free money just by having an investment account with them. If your employer offers a contribution 401 (k), you should at least contribute as much as your employer will match.
Getting Started with long-term investments will often be one of the most difficult parts of your financial life because, when you’re starting out, you do not have much money. For that reason, it is important to re-examine their investments whenever you get a raise or a new job that pays more. When you make more money, it is tempting to improve your life with a new car, an apartment, or expensive to match your new budget toys. This is what is called “inflation lifestyle.” Although it is well to move up, also you never have a better time to increase your long-term savings than when it is already living on a smaller budget than you earn.