Note: This is a guest post written by Jacob of Dollar Diligence.
Having a financial background is always beneficial when it comes to managing your money, but you do not have to have a financial background to be able to handle your expenses.
In fact, I did not have a solid financial background or any type of economics training when I finally decided to tackle and pay off my student loan debt.
I just did it.
In this post, I want to share some tips about becoming financially savvy. I want you to be able to benefit from the advice and I want you to feel confident in your ability to manage your finances and break up with your debt, if you have it.
Don’t Give in to Your Wants
It can be easy to want, want, want, especially when the newest TV hits the shelves or when the latest phone is ready for purchase. Yes, we all want these items, but we do not need them. In fact, that TV you have in your home probably works just fine and your phone does exactly what it is supposed to.
While it is okay to indulge a bit, you do not want to overspend or overindulge. You need to learn how to be frugal. If you do, you will quickly find that you run out of money and you do not have the funds you need to pay off your obligations.
Don’t Dwell on Your Past Financial Problems
While your financial problems from the past will still exist, there is no reason to dwell on them and doing this will only cause you more financial stress. It is important to stop the habits that caused your financial decline in the first place, but they do not have to rule your life. You should take a step back and look at the whole picture. This way, you can determine what you need to do differently and how to do it.
You want to learn from the mistakes you made and avoid doing it again.
For example, maybe you used a credit card incorrectly and racked up a ton of debt. Once you have the opportunity to get a new card and a second chance, don’t spend your plastic money wildly. Or, maybe you have missed student loan payments in the past, but are now finally set on paying them off.
Don’t fall into old habits. Come up with a goal, create a plan for achieving it, and don’t settle for anything less.
Have an Emergency Savings Account
It is scary to see that most Americans do NOT have a savings account and those that do often carry a balance of less than $1,000. What happens if you were to lose your job or you were to experience a serious disaster. Most people would have nowhere to turn and they would be left in a serious bind.
It is important for you to make sure you plan for your future and that you start an emergency savings fund. Most experts recommend that you have three to six months worth of bills and expenses saved up in case something was to happen.
If you decide to follow the six-month plan, how much would you need to have in your savings account? For example, if your monthly expenses are $2,300, then you would need to have $13,800 in your emergency savings fund to cover you for six months.
Do not take a backseat approach to investments or a retirement account. It is important that you have these because you will need them, especially if you plan to retire in your life. IRAs and 401Ks will allow you to start a nice retirement fund and you can even double your savings should your employer offer a plan that matches the amount you contribute.
Experts say that if you wait to invest in your retirement account then you will need to save a minimum of half of your paycheck by the time you are 40. Most people will NOT be able to this and I definitely know I would not be able to.
Be Careful with Your Credit
You credit score is not just a score and it tells potential lenders and creditors how well they can trust you to pay your obligations. If you have a poor credit score, you will find it is difficult to take out an auto loan or mortgage, be approved for student loan refinancing, or even rent an apartment.
Credit cards, late payments, and loans all affect your credit score, so if you plan to take out any loans or borrow any money, then you need to be responsible with it. Too many late payments can affect your score as well and it is HARD to recover once your score takes a nosedive.
Don’t Give Up – You’ll Get There
The most important thing to keep in mind is to keep going and not to give up. I was able to pay off $25,000 in just 15 months. I never thought it possible, but it was and I know that you can develop the mindset to pay down your debt as well. You do not have to be a financial wizard to free yourself from the chains of debt.
What has your journey been towards becoming financially savvy? How did you develop a money mindset?
Jacob is a high school math teacher by day and personal finance blogger by night. Follow his journey at @DollarDiligence!