There’s always that one friend that has her money all the way together. She’s completely financially responsible and she doesn’t have to put purchases off because she’s waiting to get paid and she was the first person you knew to buy a house.
This level of financial savvy comes from good habits and intentional choices. Don’t worry, we’re going to show you how to put these habits in place for your own life.
5 things you need to do to be more financially responsible
Having a budget is essential to achieving your financial goals. But budgeting shouldn’t be something you do periodically to pull your finances together. It should be part of your weekly routine.
Even though you can see your account transactions easily by opening an app on your phone, once a week, you want to sit down and really take a hard look at your account balances, the purchases you’ve made, and if you’ve had to tap into your savings.
Think about it this way: it’s easier to reign things back in when you find yourself getting off track if you stay on top of it. For example, if you spend more than you thought you would over the weekend, you might want to make that big batch of chilli your lunch for the next few weeks to get back on track.
There are many different budgeting techniques to consider. Find the one that works for you. You may prefer the cash budgeting method or to use software like Personal Capital or Mint. It doesn’t matter what your preference is when it comes to budgeting, as long as you make it a regular habit.
know your net worth
Your net worth is one of the best ways to gauge your financial standing. And while it’s only one of many important metrics to monitor, it does provide an accurate account of your overall financial picture. Are you considering buying a home or preparing to take a gap year? If so, it’s important to keep an eye on your assets vs liabilities. You’ll want to see where there’s room for improvement and if your debt to income ratio is in line with your goals.
Calculate your net worth.
Calculating your net worth is very simple. Add up all of your assets and subtract out your liabilities. Make sure it’s accurate by making a list of all of the assets you own (from property and possessions to retirement funds and savings). Next, add up all of your debt and subtract that figure from your assets. The end result is your net worth.
If you want to really want to get your finances under control you’re going to have to develop self-control when it comes to your spending. Like not buying that extra pair of jeans that you know you don’t need. It may seem simple, but making better choices is essential to improving your finances.
It’s also another reason that budgeting is so important. Understanding the exact amount of income that you have coming in versus the expenses that you have going out, can reinforce your ability to make good money decisions. Little tweaks in how you handle money can really add up.
Tip: Use your credit card(s) a lot? Pay close attention to those year-end analysis reports to help you see where your money really went. It might be just the reality check you need.
have a plan for your debt
Most of us have debt. Whether it’s in the form of student loans, credit cards, or lines of credit – we all have it or have had it. But to achieve debt freedom, and reduce your monthly expenses, you have to have a plan.
This means evaluating the debt that you currently owe and looking for ways to save on payments or pay down the overall balances as fast as possible.
Ask yourself these questions:
- Is your mortgage a fixed rate loan or will your interest rate change in a few years and potentially put you in a bind?
- Can you call your credit card companies and request an interest rate decrease?
- Have you consolidated your student loans to reduce your overall monthly payment?
- Can you refinance your car for better terms and potentially a faster payoff?
These are just a few of the things that you should consider as you explore your existing debts and start creating your plan for debt freedom.
A smart way to pay down debt faster.
If your budget allows, pay towards your debt more frequently than monthly. When you get your payment in earlier than the due date, you save on interest. Most banks and mortgage lenders let you split your mortgage payments into two monthly payments, which lowers the amount of interest that you pay over time.
Understand the consequences
There are negative consequences to not handling your finances properly. In fact, negative information not only lowers your score, but it also stays on your credit report for up to seven years. Yikes! You may think that missing a payment or having to pay a late fee is tough to swallow, but being so financially overwhelmed that you have to consider declaring bankruptcy with a law firm like Stone Law Firm Chapter 13 Bankruptcy or Chapter 7 are completely avoidable, but first you have to make the decision to be more financially responsible.