COLLECTION: EVERYDAY SAVINGS

6 steps to successfully managing your personal finances

Trying to successfully manage your personal finances may take finesse. Follow these 6 steps for tips on saving and budgeting.

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If you regularly feel frustrated by your financial situation, you are in good company. Across many income levels, people commonly feel as though they do not have enough money to accomplish their goals. At times, they may not even have enough cash on hand to cover their bills. Paying down debts can seem challenging, and it may feel as though you can never get ahead financially.

Regardless of your income level, it is reasonable to live within your means and to achieve financial goals. However, you must approach financial management strategically in order to do so. These are essential steps for successful financial management.

1. Create a budget

Managing your money properly without a budget is an impossible feat for most people. A budget tells you how your income is allocated each month. It enables you to find areas to cut back on, and it may help you to determine if you can afford to buy an extra pair of shoes or head to the movie theater tonight.

Budgeting may sound simple enough, but many people struggle in this area. Ensure that your budget is based on accurate numbers rather than hopeful numbers. Use your spending history to ensure accuracy. In addition, reconcile actual income and expenses regularly so that you always know where you stand financially.

2. Trim down spending

One of the many benefits of living on a strict budget is the ability to identify areas to reduce spending in. Financial stress often occurs when your spending is very close to your income level or if it exceeds your income level. Most expenses can be trimmed with proper effort, so there may be plenty of wiggle room to work with.

For example, you may be able to refinance your home mortgage or move to a more affordable rental home. You can make energy efficiency improvements around the house, shop for better rates for Internet and smartphone service, prepare more affordable meals at home, and more. With effort, you may be able to reduce regular monthly spending by hundreds of dollars or more.

3. Plan for short-term and long-term goals

Your budget gives you the ability to allocate regular contributions for savings and investments. By doing so, you may meet your short-term and long-term goals. For example, you can plan a short-term goal of taking a vacation or getting orthodontic braces for your child. A common long-term goal is to save for a comfortable retirement.

You will never reach these goals without saving money regularly. Therefore, you need to adjust your budget to include regular allocations of funds for each of your short-term and long-term goals.

4. Take advantage of modern technology

Many years ago, personal financial management involved manually logging income and expenses through a handwritten ledger. You may have had to wait for a monthly bank statement or call a customer service phone number regularly to reconcile numbers and to ensure that you did not make a mistake.

Technology has thankfully improved. Banking apps can tell you immediately what your balances are, if transactions have posted, and more. You can also use Excel to prepare a fixed budget as well as keep a running budget for income and expenses. Excel is a part of the Office 365 suite and is available to everyone.

5. Save regularly

Part of your budget should include a small allocation of funds to a savings account on a regular basis. Healthy personal finances include a well-funded emergency fund. This account may be used to pay for unexpected expenses, and it can help you to avoid relying on credit cards in a time of need.

Many people wonder how much money they need in their savings account. There is not a fixed answer that is right for everyone. Depending on your financial situation and life circumstances, you may feel more comfortable if this figure covered 3 months of your regular income, 6 months of regular expenses, or another amount.

For example, if you live in a large house and would need to pay an expensive deductible if you file an insurance claim, you may need more money in savings than a renter may need. You may also feel more comfortable having more money on hand if you are concerned about getting laid off soon if you live very close to your means and would struggle if even a small unexpected event occurs and more.

6. Focus on debt reduction

High debt balances can erode financial security. They can also inflate monthly expenses and prevent you from saving and investing more. Reducing and ultimately eliminating debt is essential for smart financial management. The first step to take for effective debt reduction involves living within your means and avoiding taking on any new debts.

After you have accumulated a healthy sum of money in an emergency savings account, you may then contribute additional funds toward debt reduction. Concentrate any additional funds available to a single account, and focus on this account until the balance is paid in full. You can then move on to your next account. Debt elimination may take years in many cases, so avoid feeling discouraged by slow results.

Wrapping up

Effective financial management can improve your life in countless ways. Each of these tips can have a profound effective on your personal financial health and security in different ways, and their cumulative results may be life-changing in some cases. Begin applying these steps to your financial management efforts today to benefit from their transformative effects.

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Article copyright 2018 by 50plusfinance. Reprinted from the November 10, 2018 issue with permission from 50plusfinance.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
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