Personal finance isn't your favorite subject. We understand. Talking dollars and cents can be confusing and stressful. As a result, you may be among the 65% of Americans who have no idea how much they spent last month. But ignorance isn't bliss, especially with your money. Here are five things you should know about personal finance to make sure you make the most of every hard-earned dollar.
- Budgeting is key to successful money management.
Tracking your income and expenses is the fastest way to gain control of your finances. Once you know how much money you have available to cover expenses, you can decide how you'll use the remaining funds to build wealth. Whether you use a mobile app, online software, or pencil and paper, the most important thing you can do is to create a budget - now! Record your total take-home pay from all sources, then subtract your expenses. The amount left over is what you can use to achieve your short- and long-term financial goals.
- Early savers can save more, with fewer deposits.
The sooner you start saving for retirement, the more your account balance can benefit from compound interest. When your savings balance compounds, it's earning interest on top of interest. This means that your money has the potential to grow well beyond the original deposits. To reap the maximum benefits, start a consistent savings habit as soon as you start working. If your employer offers a matching retirement savings plan, contribute up to the matching amount.
- Credit health can either expand or limit your choices.
Like it or not, your credit history serves as a crystal ball to future credit responsibility. That's one reason many lenders, landlords, potential employers, service providers, and insurance companies review your credit history report or credit score before deciding whether they'll say "yes" to your application. Past credit mistakes don't have to control your future. Turn your credit health around by paying bills on time and keeping account balances low. These two behaviors have the greatest influence on your credit score.
Order free copies of your credit reports from AnnualCreditReport.com. Each report includes instructions on how to read the data, and may even point to behaviors affecting your credit health. Review your reports at least annually to ensure the data is accurate. If you find errors, follow the dispute procedures of each credit reporting bureau.
- Insurance coverage can protect you from a financial disaster.
An auto accident, home break-in, or weather event can do more than damage your property. It can turn your financial world upside down. But if you have an insurance policy, you can limit your out-of-pocket expenses to the deductible amount. Since each person's situation is unique, speak with an insurance agent about your coverage options.
- Emergency savings funds allow you to stay in control of your finances.
Imagine having a zero-interest rate source of funds to tap if you lose your job or get hit with a large unexpected expense, such as when a major appliance is beyond repair. When you have a financial safety net, you're less likely to turn to high-interest rate credit cards or loans to cover expenses. You can confidently turn to your savings buffer without missing a beat.
It can take years to build your fund, but you can shorten the timeline by depositing tax refunds and other cash windfalls into a dedicated savings account.
We might be biased, but personal finance has always been our favorite subject. Learn more about responsible money management for free with our Financial Wellness program. Besides diving deeper into the topics introduced here, you can expand your financial literacy with additional tools and resources!
*Logix Federal Credit Union is not affiliated with Intuit or Annual Credit Report.com, and is a separate entity. Please contact Logix at (800) 328-5328 or visit www.lfcu.com if you have any questions about this topic or would like to consider opening an account. This blog is intended for informational purposes only and is not provided as tax advice. Please consult with a tax professional or attorney for specific tax related questions. Logix is Federally Insured by NCUA and is an Equal Housing Lender.