7 Essential Personal Finance Tips for Beginners

Oct 3, 2023

Getting your financial house in order can be tough when you’re just starting out, but it’s easy to feel overwhelmed not knowing where to begin. Here are some basic tips that can help you get on the right track.

Track Every Dollar with a Budgeting App

Financial power begins with understanding where your money is going. According to a survey by The Ascent, 60% of Americans use a budgeting app to track their expenses. 

Some budget apps you can use include  MintYNABPersonal CapitalPocketGuard or Goodbudget.

Save for Emergencies Before Other Goals

Setting up a financial buffer for unexpected costs is your topmost priority. An unplanned expense can wreak havoc on your finances if you do not have savings in place.

A general rule of thumb is that your emergency fund should be equivalent to 3-6 months of living expenses. A survey by Bankrate found that only 39% of Americans have enough savings to cover a $1,000 emergency expense.  

Pay Off Credit Cards Aggressively

Credit card debt, with its high-interest rates, can be financially crippling. Arrange your cards according to the interest rate and concentrate on clearing the highest debts first, a strategy also known as debt avalanche. There’s the option to consolidate your balances to a lower rate card, but be mindful of the balance transfer fees, reduced credit limits, or minimum payments. 

Seek financial help if needed; there’s no shame in asking for help. Once your balances hit zero, you will feel a surge of relief.

Fund Retirement Accounts Early and Often

Make sure you contribute to your workplace retirement schemes to receive the full employer match, typically a percentage of your salary. 

Get a head start on your retirement planning by opening an early IRA with trustworthy firms like Vanguard or Fidelity. Invest in the stock market right away through target date funds ( for a hands-off approach ) or opt for low-fee Roth or traditional accounts to diversify your investments. 

According to a study by NerdWallet, a 25-year-old who invests $5,000 per year in a retirement account with an average annual return of 7% could have over $1 million by age 65. Utilize the power of compound growth; your future self will be grateful.

Use Credit Cards Responsibly to Build Scores

Start by limiting purchases to essentials you can pay off each month. Keeping your credit utilization low and paying statements in full helps establish a good payment history.

If you lack credit, a secured card requiring a deposit can help you get started. Maintain on-time payments for 6-12 months before upgrading. As you demonstrate responsible use, consistently apply for credit line increases. Higher limits boost your available credit over time.

Control Spending – Live Below Your Means

The formula is simple – spend less than you make and save the difference. You can use the 50/30/20 rule to keep your expenses in check; allocate 50% of your income to necessities, 30% to wants, and save the remaining 20%. To save and invest more, focus on reducing nonessential expenses. 

Limit luxury expenditures, switch to affordable housing and transport options, and minimize credit card use. Save cash for major buys instead of taking on credit.

Start Investing Early and Stay Invested

Create a Roth IRA account with reputed online brokerages like VanguardFidelity, or Schwab. Prioritize low-fee, diversified index funds or ETFs for regular investments.

Target date funds or robo-advisors can be an alternative for those who prefer having automated investments. Remember that investing is not about getting lucky but having patience. Longer time spent in the stock market far outweighs perfectly timing the market. Let compound growth optimize your returns.

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