Is your goal to live life like your favorite reality TV star, or do you just want financial stability and a luxury vacation every now and then? Whatever your lifestyle goals, you can’t meet them without learning how to be responsible with money. No one wants to be stuck in debt. The best way to avoid debt is to develop good financial management habits as soon as you start earning money. But even if you’re decades past the point where you started earning money from your first job, improving your money-managing skills can make a difference in your financial situation.
Practicing financial responsibility is key to living a healthy financial life. Living within your means is essential to being financially responsible. Go over these tips to learn how to be responsible with money, and apply them to your life
Stabilize your income
If you’re a young person, get a job. If you’re a working adult, stabilize your income. Obviously, you must have money coming in to improve your skills in managing money. Temporary income, borrowed money and sporadic earnings help in the short term but make it hard for you to meet ongoing financial obligations. Put underemployment in this same category. You should always try to maximize what you’re paid for your time and skills. If you took a job to pay bills but you’re qualified to do something that pays more, keep working to advance your earnings.
Set financial goals
Take a few minutes to set some money goals. For example, determine how much it costs you to live for a month at your current level, then make a goal to save at least six to 12 months’ worth of expenses to protect yourself against losing your job or another catastrophe. You might also set goals for short-term savings, such as putting away $25 a week for an upcoming summer vacation. Goals might also include reducing debt, making a large purchase such as a home or saving for retirement.
Financial savvy is not something you’re born with. Everyone has to learn how to manage money, and the more interest you take in learning financial responsibility, the less likely you are to develop bad habits that lead to financial ruin. Fortunately, there’s a wealth of information available online and through financial management classes that can help expand your knowledge and raise your money-management skills. Take advantage of these resources to elevate your financial future.
Make a budget
Budgeting is a simple skill that can have a big impact on your financial stability. Basic budgeting involves tracking your expenses so you know where your money is going and can make adjustments as needed. With a budget, you’re less likely to overspend. If you do have a shortfall at the end of the month, you can look back to determine what happened and make different decisions going forward.
Responsible money management is not just about how you spend money. Saving money is just as important to financial responsibility. Your savings protects you against unforeseen events that can prevent you from paying bills on time or meeting emergencies. Take advantage of any options you may have for automatic savings. Some banks let you set up automatic transfers from checking to savings to make it easier to save a regular amount each paycheck. Ask your payroll department about adjusting your W-4 to pay a little extra in federal taxes from your paycheck to get a bigger refund every year. These types of automatic savings can be a help if you find it hard to set aside money on your own.
Learn about employment benefits
Take a moment to look through your employer’s benefit manual. You may be surprised how your employment benefits can help you save money. Some jobs offer a transit allotment, and others have flexible-benefit plans that let you pay for some expenses with pretax dollars. The bottom line is that you can’t use your money responsibly if you don’t know about or take advantage of benefits that offer savings.
Establish a credit profile
Being good with money and having good credit go hand-in-hand. You establish a credit profile with the first line of credit you obtain, so choose wisely. Don’t buy something on credit simply because you can. Evaluate the credit terms, and pick a credit product that’s well within your ability to pay on time.
Avoid expensive debt
After you establish a credit profile, it’s your job to continue to choose the debt you take on wisely. An interest rate is one of the ways to compare credit products, but other fees and charges can play a role. Avoid expensive debt with high interest rates and excessive fees for things like late payments and overdrafts. If you don’t have ample savings, you may be forced to accept poor credit terms on loans to cover emergencies because you don’t have time to shop around.