Understanding Loans: How to Make Borrowing Work for You
Achieving these goals requires the right tools and good money habits. Learn practical tips and tools for building a strong foundation, including budgeting, tracking expenses, saving, avoiding debt, investing, and creating an emergency fund.
Set Goals
While everyone’s personal finance
journey looks a little different, there are some key fundamentals that are
always essential. One of these is setting clear financial goals, which can be
based on a specific dollar amount or measurable behavior changes.
Start by creating a list of your
income sources and expenses. This can be as simple or complex as you want, but
it’s important to understand what you are spending each month and how much you
are saving. Creating this list can also help you identify any potential areas
of improvement, such as cutting down on unnecessary expenses or increasing your
savings rate.
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Then, look at your net income
(income after taxes), which can be found on your pay stub and bank statements.
Compare this against your monthly expenses, which you can find on your credit
card statements, bank accounts or budgeting apps. Make sure to include all
expenses, including your housing costs, insurance, loan payments,
transportation and subscriptions. You should also consider your short-term
expenses, like travel and dining out, as well as long-term expenses, such as
retirement savings or education costs.
Once you have your budget in
place, start by establishing some basic goals. First, focus on building up an
emergency fund that can cover at least six months of living expenses in case
something unexpected happens. Then, consider putting some of your extra income
toward retirement through investments in tax-advantaged accounts, such as your
401(k) or IRA.
When setting your goals, try to
connect them to deeper motivations to make them more meaningful. This can help
keep you on track as you work to reach each milestone. For example, if your
goal is to save for an upcoming trip, you can set a specific date or create a
deadline to help motivate you.
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Track Your Expenses
In order to make sure you’re
meeting your financial goals, it’s important to know where you’re spending your
money. That’s why many people find it helpful to track expenses on a regular
basis. Expense tracking can be as simple as writing down your purchases on
paper or using an expense-tracking app on your smartphone. It can also be more
sophisticated, with apps that offer features like automatic syncing, debt
payoff tracking and budgeting tools. The key is to find a tool that works for
your needs and financial management style.
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