If you feel like your finances are a mess and your handling of them is haphazard, you are far from alone. Personal finance is a topic that is often not taught at all in schools, and many people enter adulthood with little idea of how to make a budget or manage their debts, let alone how to invest their money. However, no matter your age or financial situation, it’s never too late to take control of your money and improve your financial future.
Create a Budget
Before you can do anything, you need to know how much you are spending and how much you need. Some of your expenses are fixed, such as your rent or mortgage. Others are variable, such as what you spend on clothes, food and entertainment. Most people don’t really know how much is going toward these variable categories, so you may need to start by tracking your spending for a month or two. Once you have this information, take a look at where you might be able to reduce your costs and make a budget. Be sure to include one-time expenses, such as vacations, birthdays and holidays. There are apps that can help you with this process, but it’s fine to use a spreadsheet or even pen and paper if you are more comfortable that route.
Build an Emergency Fund
The first step to financial security is making sure you have an emergency fund. How much this should be depends on several factors, including whether you have dependents, whether you are freelance or a full-time employee, and what kind of financial obligations you have. Three to six months of income is generally the recommendation, but you may want to save more. This fund should be one that is easily accessible, such as an interest-bearing checking or savings account.
Pay Down Your Credit Card Debts
Many people carry such debts as a mortgage or a car loan, and as long as you are paying them off on schedule, these should not be a source of worry. However, credit card debt can be draining. Experts are divided on whether you should save or pay your debts first. It may come down to looking at the interest you’ll earn if you save versus the interest rates on your debts, but there are also ways to bring down those interest rates on your debts. Personal loans are a great option, and often at a much lower rate. Simply use the money to pay off your higher-interest credit cards.
Choose Your Investments
Once you’ve paid off credit card debt and established emergency savings, it’s time to think about investing. You may already contribute to a retirement account through your workplace, and if you don’t, this is a good time to start. For other types of investments, you might want to talk to a financial professional. The type of investment you choose depends on your goals, the time frame for investing and your tolerance for risk. Mutual funds are a popular investment choicefor people who want to invest without being experts in the stock market. Index funds or exchange-traded funds, also known as ETFs, may also be good choices.