Maintaining a firm grasp on your personal finances can help you meet long-term and short-term goals. Maybe you’re saving up to buy a house in the near future, or maybe you want to retire at an early age. Regardless of your plans, the decisions and choices you make today will have a major impact on your financial future.
Luckily, you don’t have to be a personal finance expert to make wiser money choices and improve your financial outlook. And while your personal finances might be less than ideal today, there are practical, simple ways to reach financial stability in the next five or 10 years.
1. Live below your means.?
You probably know the importance of living within your means, but if you want to achieve financial stability in the future, take it a step further and live beneath your means.
After a review of your income, you may conclude that you can reasonably afford to spend $1,500 a month on housing and perhaps $300 a month on your car payment ? and that?s with setting money aside each month. But, why save a little when you can save a lot more?
Just because you can afford a certain lifestyle doesn’t mean you have to live it. For that matter, rather than spending $1,500 a month on housing, how about spending $1,100 or $1,200 a month? You could put the savings into a high-yield savings account, which puts you closer to goals.
2. Get your credit in check
A bad credit history isn’t the end of the world; and like so many others, you can successfully clean up your credit and achieve a higher rating.
A good credit rating not only helps you qualify for loans and credit cards, it also impacts the interest rate you pay on these accounts. The higher your interest rate, the more you?ll pay monthly. And the more you pay monthly, the less you have available for savings.
For this matter, you should always aim to get the best rate possible on any line of credit. Of course, if your credit isn’t currently in the best shape, you?ll need to get proactive and take steps to improve your creditworthiness. For example, you can hire a credit repair company to remove erroneous information from your reports. Likewise, you can develop a plan to pay off debt, as well as pay your bills on time. Both efforts will result in a higher credit rating.
3. Pay down debt
Although it’s important to pay down debt in order to increase your credit score, paying off debt can also help you reach financial stability.
For starters, the less you owe creditors, the more disposable cash you have each month to put towards your rainy day fund or your retirement accounts. For this matter, you should aim to maintain a reasonable debt level. You can achieve this by only using credit cards when absolutely necessary, and then paying off your balances each month.
Additionally, if you?re financing a car, you might select a short repayment term or put down a larger down payment, which helps get rid of the debt faster. And if you own your house, paying extra toward your principal each month or making an extra principal payment once a year can shed years off your mortgage payment.
Getting rid of debt may require sacrifices. Some people skip annual vacations to generate extra cash for debt repayment, whereas others look for side gigs and other ways to earn extra money.
Given your present financial health, financial stability may seem like a far off dream. However, with an effective plan and the right amount of effort, you can reach all your financial goals and more.