Dealing with money and budgeting can seem overwhelming but by tackling the basics, you’re setting yourself up for success and can move onto more advanced personal finances when you feel ready. These 5 personal finance tips are a great place to start if you want to save money.
1-Build an Emergency Fund
It might be tempting to put all of your savings toward exciting financial goals such as saving for a home or a car, but an emergency fund is even more important. This is money set aside to help you through unexpected events that can hurt you financially, whether it be a medical emergency or losing your job. So, if an adverse event occurs, this fund can protect you from having to use credit cards or take out loans.
The recommended emergency fund should have 3-6 months worth of expenses, but some experts recomend saving $1000 in the emergency fund, pay off debts and then complete the 6 months worth.
Now, saving money in an emergency fund is only half the challenge. The other half is not touching it until it’s absolutely needed.
2. Contribute to a 401(k) or IRA
Retirement may seem very far away, but the sooner you begin contributing and the more you set aside, the more you will potentially have when the time comes.
If you are offered a 401(k) plan by your employer, you should be contributing as much as possible. Take advantage of any matching funds your employer provides as well. The money you contribute is excluded from your taxable income.
If you don’t have access to a 401(k) plan, you should look into an Individual Retirement Accounts (IRA). As with 401(k), contributions to traditional IRAs are tax-deductible and the assets grow tax-deferred until you begin withdrawals.
3- Reduce Variable Expenses and Eliminate Unnecessary ones
Your monthly spending can be broken up into two categories: fixed expenses and variable expenses. Your fixed expenses are the same every month, such as rent or mortgage, loan payments or school bils. Your variable expenses are those that change month to month, like food, shopping, and entertainment and are the ones you can manage. Some of these expenses can be completely cut out and others can be reduces.
4- Avoid impulse spending
It is very easy to think we really need something that we usually don’t. A way to evaluate this is to think it over for at least one day. Items on sale, especially, can be very tempting. But, if we fight the impulse and review our purchase better, we may realize we can save that money.
5- Don’t Increase Your Lifestyle Costs When Your Salary Increases
If you get a raise, be smart and don’t raise your monthly costs. Many people upgrade almost everything when they earn more money. If, on the contrary, you keep your expenses the same when you have a greater income, saving momey becomes a lot easier.