5 Tips for Overhauling Your Personal Finances
Sometimes all your car needs to run well is a minor tune-up. But sometimes a major system fails and your vehicle needs serious repairs. All drivers know there’s a big financial difference between getting a little tune-up and replacing major components under the hood.
Your personal finances are the same way. You can generally get away with small acts of maintenance like paying bills and saving part of each paycheck each month. However, it’s important to evaluate how your financial “vehicle” is running every so often. You may discover some components — i.e. beliefs and habits — are worn or broken. It’s up to you to update them when that is the case.
Need to make some major changes to your personal financial strategy?
Here are five tips for overhauling your approach to money management.
Automate Savings & Itemize Your Accounts
Making changes to how we save is one of those tasks it’s all too easy to write off for “next month.” But a few simple changes sooner rather than later can help you grow your nest egg and take advantage of compound interest.
If you don’t already have multiple savings accounts, it’s a good idea to go ahead and itemize them rather than sticking all your funds into a single catchall account. Start with an emergency fund, a general savings cache and one account for a specific goal — like travel or the down payment on a car/house.
According to The Motley Fool, here are four benefits of separating your savings into goal-based accounts:
- Contributions are easier to automate.
- You can track your progress toward specific goals at a glance.
- Seeing your various accounts grow can boost your motivation.
- Earmarking money for specific goals will reduce your chances of misspending it.
Automating small monthly contributions can help you reach your money goals faster.
Start Actively Eliminating Your Debts
Get rid of your debts as soon as possible so you can avoid the trap of growing interest. You may choose to tackle debt on your own using the snowball or avalanche method — the former which dictates you pay back your debts in ascending order by balance; the latter which calls for paying off your highest interest rate first then moving down the line.
Many people find they need a more structured strategy to tackle their debts, especially those with thousands of dollars in credit card debts or medical bills. Taking out a debt consolidation loan could help you simplify your debts and reduce your interest payments. Enrolling in a debt management plan could help you earn more favorable interest rates and eliminate fees. Reaching out to a debt settlement company could help you get on track to negotiate down how much you owe.
Find a Spending Plan That Works
Budgeting might make you want to roll your eyes and say something like, “I’ve tried that. It didn’t work.” You’re certainly not alone in that experience. This is precisely why many experts recommend trying a simpler and more flexible spending plan, which aligns what you earn with what you spend. Use a free money management app to help you track spending, rather than logging receipts manually.
Meet with a Qualified Credit Counselor
When in doubt, reach out for help. Credit counselors are trained to go over your financial situation in detail to help you come up with a plan. If you choose a counselor at a reputable non-profit agency, you can usually schedule a meeting for free — and go home with plenty of additional resources to help in the future.
Stay Current on Your Credit Report
Check your credit report regularly. Staying current will allow you to catch and dispute errors as soon as possible — and understand your credit usage better. You’ll know exactly where you stand when it comes time to apply for a loan or an apartment. You can access reports from each of the three major credit agencies once per year for free.
Just like taking your vehicle in for repairs as needed, overhauling your personal finances every so often will help you get back on the road toward your money goals — except even better than before.
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