3 Important Tips to Regain Control of Your Finances

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Do you feel like your finances have gotten out of hand? If so, it’s probably time to do a real, hard assessment of where you stand with money. Once you understand where you are with finances you can come up with an action plan to come up with a plan to get back on track. Here are some tips to regain control of your finances.

  1. Make a Budget (for Real)

Just about everyone has heard the old advice about making a budget to get their finances under control. There are lots of studies that have attempted to gauge what percentage of U.S. adults use and stick to a budget.

But there’s often conflicting results between polls.

No matter who you are, you can benefit from budgeting your money. Even if you’re very well off and don’t want to think about it, you should hire an accountant to ensure you’re not spending beyond your means. It’s easy to slip into costly habits that keep you in a cycle of overspending without a roadmap for avoiding it.

Making a budget is one of the cornerstones of regaining control of your finances. To do this, you’ll have to be willing to be honest, and potentially make some changes with your lifestyle. The most important element to budgeting is making it so your total expenses don’t exceed your income. If this isn’t the case, or you have very little wiggle room, you’ll have to either cut expenses or generate more income.

Creating a hard budget will keep you from spending money you don’t really have, which forces you into debt. Ultimately, getting your finances in order is about improving your quality of life. Budgeting is one of the initial steps to doing this.

  1. Understand Important Concepts

Whether you’re having trouble paying your bills, or if you’re just not feeling like you don’t have a healthy relationship with money, understanding important financial concepts can help you regain control. These are a few terms that are just about everywhere, but are often misunderstood by consumers:

  • Interest – This is money you’ll have to pay on top of the amount you borrowed on a loan. An interest rate determines how much interest will accumulate on loans—typically measured over an annual period. Higher interest rates on loans are worse for consumers, as this means you will have to pay back more over time.
  • Credit Score – While your credit score might not seem important most of the time, that simple number can really play a big role in your financial health. The biggest way your credit score comes into play is when you’re applying for a loan. The better your score, the more likely you’ll be able to lock in a nice, low interest rate. We’re not talking about just a few bucks, either. The difference can be very substantial—especially on longer duration loans.
  • Compounding – This is the idea that, over time, interest can add onto itself and create exponential growth. Compounding is your friend when you’re investing your money, as your gains keep getting larger over time. But the opposite is true if you owe money where interest can compound. Knowing the power of compounding is one of the most powerful tools when looking to regain control of your finances.
  1. Create a Debt Repayment Strategy

If you’re deep in debt, you’ll want to figure a way out of it as soon as possible so you can start getting your financial life back on track. Having a lot of debt can keep you in a hole; but it’s not impossible to get out. There are a few methods that consumers can attempt on their own before opting to work with a debt relief agency or filing for bankruptcy.

Look at credit card balance transfers as a potential option. This is a form of debt consolidation where you can move your credit balance to a new account that offers a low introductory rate. Having a grace period of not accumulating interest can sometimes help people get their head above water in term of their debt. It’s important, however, to watch out for fees or other fine print hidden with a balance transfer that might make it a less optimal solution for you.

You should also consider if utilizing the debt snowball or avalanche methods might help you retake the reins of your financial life. The snowball repayment plan is where you eliminate the smallest debts first, regardless of interest rate. This can create momentum that will encourage you to keep going, and eventually pay off all your debt. On the other hand, the avalanche tasks you with tackling the highest interest rate debts as the top priority. Doing this can save you a bit of money, but won’t come with the same emotional appeal.

No matter who you are, or where you are in relation to your finances, feeling like you’re in control can bring peace of mind. Consider how these approaches might allow you to regain control of your finances.

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