Financial responsibility is one of the toughest things about becoming an adult. Learning to manage money isn’t something anyone masters overnight. In fact, being financially responsible is an evolving practice which you’re never finished with, no matter how old you are. When your finances are in shambles, however, or you don’t even know how much money you owe, it’s time to get a handle on your relationship with money.
Craft a Budget
If you’re the type of person who swipes your cards and hopes for the best, it’s time to make a real budget. First, you’ll have to add up every bill you get monthly: rent, utilities, credit cards, cable, Internet, student loans, and whatever else you might have. Then take a look at how much you spent on groceries and gas in the last few months, and create a monthly expenditure for them. At this point, you should still have some income left over. If you don’t, do without cable or eating out for a while.
Tackle Debt With the Highest Interest First
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You can’t stop paying your student loans in order to pay off a credit card with higher interest. What you can do is this: Pay the minimum monthly payment on every bill except the one with the most interest. Whenever you have extra money, pay the debt with the highest interest rate so you don’t lose any more money to that interest rate. In fact, plan to pay that debt off quickly by putting extra payments for it in your budget.
Take Out a Personal Loan
Sometimes you simply can’t make your budget work with your current circumstances. Whether you have too many credit cards or are looking for a job that pays better, you might need to jump-start your budget with a personal loan. As long as you get a personal loan with a lower interest rate than your current debt, you’re golden. Do your homework about hidden fees, too. Use the personal loan only to pay down your debt; in fact, personal loans are a smart strategy for consolidating your debt and can lower your monthly payments and help you pay off the debts sooner.
Make Space for Saving
Once you’ve made a budget you can handle and are on your way to tackling your debt, you need to think about saving money, too. The truly financially responsible make space in their budgets for saving even when debt isn’t totally paid off. People save for two main reasons: for an emergency fund, in case of job loss or unexpected expenses, and for retirement. The general goal is to have three to six months’ worth of income in an emergency fund. Retirement saving is a much longer game, but if you don’t have a 401K or IRA already, it’s time to invest in one.
When it comes to paying off bills early and saving money, start small. Nobody expects you to put away half of your paycheck every month. Get the hang of budgeting first, then tweak your budget until you’re happy.