In these turbulent economic times, making money is no longer enough. Financial literacy is a necessity for Americans in order to plan and protect themselves from the accumulating risks of inflation, labor and wage pressure, and rising interest rates. Unless you learn how to make sense of and manage your finances, living paycheck-to-paycheck can lead to serious consequences for your health, relationships, work performance, and overall quality of life. In order to empower yourself and achieve lifestyle security, here are the key aspects that you need to consider when maximizing your personal finances.
Am I tracking my spending?
The more you track your spending across categories, the better you will understand your spending habits and relationship with money. This can then help you cut back on unnecessary expenses and allocate your money toward more essential purchases. Moreover, the Daily Journal Online explains how holiday transactions often lead to financial setbacks, such as severe overspending, since individuals spend money in ways they normally wouldn’t at any other time of the year. You can thus avoid these issues by using money management apps or creating your own financial tracker. It’s also advisable to keep your bank credentials and passwords secure to avoid unwarranted purchases.
What am I doing to improve my credit score?
On top of getting a grasp of where your money goes, it also pays to assess whether you’re doing enough to improve your credit score. Your credit score has a critical impact on your financial needs and goals, whether it’s something small like availing utility services for your residence or buying a property as a major investment. Although having a savings or checking account can’t make you build your credit score by itself, it builds your relationship with a financial institution that can provide you with a range of credit opportunities later on. On top of co-signing utilities or debts with people whom you know and trust, paying your bills on time is also an easy and effective way to boost your score.
Do I take a chance with a personal loan?
Beyond bank accounts and credit cards, a personal loan also goes towards diversifying the credit mix for your credit score. Compared to other types of loans like auto and housing, a personal loan is relatively flexible and covers a wide variety of financial needs. However, if you’re not careful, taking out a personal loan can otherwise hurt your credit score in terms of application and repayment. A Sound Dollar guide to personal loans and credit scores therefore advises you to look for lenders who allow you to prequalify. You wouldn’t want to apply for a loan only to get rejected in the end, as this counts as a hard credit inquiry that temporarily harms your credit score. Your payback scheme also matters; you can’t pay off the loan too early or too late. You can set up real-time debit to avoid overdue payments, while also staying within the established loan terms to maintain your credit utilization rate.
How do I prepare for the future?
Taking into account economic uncertainties like inflation, the money you have now will not hold the same value in the future. If you’re an aspiring homeowner, a previous look at a million-dollar home in Detroit can help you expand your financial knowledge when it comes to housing rates and property values, though your location and income level will ultimately impact how far your money will go. Meanwhile, a diverse investment portfolio can also help you spread out potential financial risks, for example by combining liquid assets like stocks and bonds with a more passive income opportunity like real estate.