In a rocky economic landscape marked by higher inflation rates, effective money management skills are more crucial than ever. These skills ensure financial stability, offer a safety net during challenging times, and provide a path to fulfill our long-term financial goals.
For those juggling life and its many ups and downs, we’ve compiled six simple, yet practical money management tips for 2023.
1. Master budgeting skills
The cornerstone of any sound financial plan is a budget. A budget provides a clear view of money coming in and money going out. In turn, you can identify where you may need to spend less and save more.
Start by tracking your income and expenses over a couple of months, then categorize spending into essential (rent, groceries) and discretionary (entertainment, dining out). Keep a close eye on your budget so you can adjust your spending and saving habits accordingly.
2. Build an emergency fund
The economic impact of the past few years highlights how important it is to have a financial safety net. A good goal when starting an emergency fund is to set aside three to six months of living expenses.
This may sound like a daunting amount of money to save, but start small. Setting aside just $25-$50 per paycheck can help accumulate savings quickly. As inflation increases, the cost of living increases, too. Take this into account when building your emergency fund.
3. Pay off high-interest debt
Debt can keep your financial situation in a chokehold. High-interest debt, like credit card debt, can be especially burdensome during periods of economic uncertainty. Prioritize these debts and create a plan to pay them as quickly as possible.
Consider different strategies for paying down debt, depending on your financial situation. It may be best to pay small debts first to inspire motivation (snowball method) or to pay high-interest debts to minimize interest paid (avalanche method). A budget can help you evaluate which will work best for you.
4. Consider investing
When inflation is high, money kept in a traditional savings account may not earn enough interest to keep up with the inflation rate. Instead, consider how investing might work in your favor.
Start small by investing a portion of your savings across different types of assets, including stocks, bonds, and ETFs. These types of investments carry more risks than simple savings accounts but may also offer long-term average returns that can outpace inflation. Do your research and consider speaking to a professional before you get started.
5. Monitor your credit score
Keeping tabs on your credit score is crucial because it affects your ability to secure loans, rent homes, and even get a job, in some cases.
Maintain and improve your credit score by making on-time payments, keeping credit card balances low, and checking your credit reports for errors. In 2023, with higher living costs and the potential for debt, maintaining a strong credit score is more important than ever.
6. Constantly educate yourself
Continuous learning is key. Stay updated on economic news, trends, and skills. Utilize free online resources or community workshops that offer financial education and training. This will ensure you’re better equipped to make financial decisions that align with your current circumstances.
There will always be uncertainties in life, but following these practical money management tips can enable you to overcome challenges and thrive. Remember to start small, remain consistent, and look forward to the long-term benefits of your effort.