Do you ever find yourself running out of cash before your next payday?
If you do, then you probably aren’t good in managing your personal finances. If it’s any consolation, you are not alone.
The simple truth is many people in Australia, the United States, and several other countries live paycheck to paycheck, often with little to no money in their rainy day and retirement funds.
But, the reason many people survive on paychecks isn’t because the money they’re making is genuinely insufficient. The real reason is they lack solid personal finance skills.
In this post, we’re sharing the 10 personal finance skills you need to take control of your personal finances and attain financial freedom.
Let’s get into it.
1. Budgeting
To be a prudent money manager, you need a budget.
Regardless of the amount of money you pull in every month, you need to draw up a spending plan. Without one, you risk blowing your money on things that aren’t essential to you.
To create a budget, start by calculating how much money remains in your account after taxes and other mandatory deductions.
Next, calculate your monthly expenses. This includes the cost of housing, utility services such as water, cable television, electricity, food and commuting. Also, include luxury expenses (anything that you can do without), such as dinner outs and movie tickets.
After adding up your total expenses, assess how they stack up against your disposable income. Do they exceed income? Close match?
Set a monthly spending target, and start cutting down your expenses until you hit the target. That’s how you end up with a budget that works for you!
2. Financial-Service Hunting
What influenced you into opening a personal finance account with your current bank?
If you chose the bank simply because it has a ‘cool factor’ or someone close to you recommended it, you could have made the wrong choice.
Knowing how to hunt for the best products in the finance services market is one of the most important personal finance skills to have. You must evaluate interest rates, transaction charges, maintenance fees and other costs before settling on a bank.
3. Negotiation
Negotiation doubles up as a business and personal finance skill.
While being savvy with your own money is crucial to financial freedom, the amount of income you earn is a major player.
Here’s how negotiation comes in.
Whether you are looking for a job, getting a promotion or hunting for a business contract, you must know how to negotiate for better financial terms.
A salary raise or a bigger business contract will no doubt improve your personal disposable income. This means you can start saving more money for retirement!
4. Personal Investment
No one wants to rely on employment until you can’t physically work anymore. In fact, about 70 percent of millennials want to start a small business.
Making personal investments is the best way to get out of employment and take charge of your financial destiny.
However, investing your personal money is a lot riskier. Get it wrong and you risk spiraling into debt. Therefore, you must have the skills to study various investment markets and pick out excellent opportunities before making a move.
5. Debt Management
Even though debt is undesirable, sometimes it’s the only way to make it through the month. Thousands of people also borrow to start a business.
Whether you borrow from family or friends, payday loan providers or banks, it’s essential to master the skill of debt management.
Don’t borrow more than you need, hunt for the lowest interest rates, consolidate credit card debts when you can, and pay off your loans on time to avoid unnecessary charges.
6. Going Frugal
Being frugal means being economical with your money.
Sure, you don’t have to adopt a frugal lifestyle for good, but foregoing the little (or big) things that make your life fun and worthwhile can help you save money.
If you are movie addict, for instance, you don’t have to buy a movie ticket every weekend. You can surely do with one or two in a month. Can’t you?
Instead of going to the mall over the weekend, how about spending time in the park where you have little chance of making an impulse purchase?
7. Reading Financial Statements
Banks, credit card companies and other financial institutions that handle your money usually issue various financial statements.
Knowing how to read and interpret these financial statements is also one of the most useful personal finance skills.
You will be able to track how money flows in and out of your account and spot any suspicious transactions in the statements.
8. Building Your Credit Score
As we said, sometimes you may need to secure a loan for various reasons.
However, getting approved for a loan is not that easy. You must prove to prospective lenders that you’re able to repay the loan with interest in a specified timeframe.
If you’ve a poor credit history, lenders, especially banks, will turn you down. But having a good credit score improves your chances.
Therefore, you must know how to build your score. Pay bills on time, clear existing loans, and clear credit card balances.
9. Getting Insured
Life is uncertain.
Your employer could go out of business in a few years, your own business could sink or the economy could crash.
Insurance protects you from such uncertainties. With good personal finance skills, you will easily know which type of insurance cover you need most.
If you’re uncertain about your job, then you need unemployment insurance cover. Life, medical and disability insurance policies are also essential.
10. Estate Planning
What happens to your wealth after you are gone?
Estate planning is the process of arranging how your physical assets (like houses) and financial assets (like money in a retirement fund) will be managed.
Even though conversations around estate planning are often difficult, planning ahead is the best way to protect your hard-earned assets and safeguard the future of your loved ones.
Closing Thoughts on Personal Finance Skills
Personal finance skills are a must-have if you want to lead a successful and fulfilling life.
To this end, we hope that you’ve learned about the skills you need to make the out of your own money. Apply them in your everyday life.
And if you need a cash advance to take care of short-term needs as you make adjustments to your personal finances, talk to us today.