With the COVID19 pandemic taking many people’s finances for a toss, the need to evaluate your financial health is more vital than ever. Unfortunately, very few people understand the importance of personal finance management, resulting in decisions that lead to increased debt and inadequate savings. Financial planning offers you mental as well as financial security.
While you can seek help from one of the best Florida financial advisors, you also need to understand and engage in your financial management proactively. The good news is, managing your personal finance isn’t rocket science. Most importantly, you can start planning anytime, irrespective of your current financial situation.
Here is how you can start improving your financial health.
- Take a Hard Look at Your Finances
Before you start planning, you need to know exactly where to begin. That’s why it is necessary to a closer look at your current finances. You can start by understanding your net worth.
Net worth is the difference between what you own (income and assets) and what you owe (loans, mortgages, and credit card debt). Calculating the value of your assets and income as well as your debts and loans can help you figure out your approximate net worth.
Most experienced Florida financial advisors advise to start by calculating your net worth because it helps you create a personal budget. For example, if your expenses exceed your income, your net worth is negative. So, you will need to reduce your expenses or increase your income to build a surplus first. Once you have a surplus, you can decide how you want to invest or save your money.
- Control Your Spending
Another essential step you need to take is to control your spending. In other words, you need to spend less than you earn. You can’t keep borrowing from the future to cover your current expenses. Unless your folks have left you with a trust fund, it’s better to start spending mindfully.
So, you will need to define your needs and your indulgences. You should spend your money on your priorities like rent, mortgage, insurance, credit card dues, food, education, transportation, personal care, and utilities, among other things.
Whenever you spend money, make sure you are not spending it on the things you don’t want or need. Excessive spending can quickly mount your credit card debt, which in turn, can result in acute mental stress. So, if you don’t need a new laptop or iPhone, don’t spend your hard-earned money on it. Instead, invest for your retirement or your kid’s education.
- Pay Off Your Credit Card Debt
While credit cards are readily available for working Americans, they can quickly turn into a debt trap. Before 2020, consumer credit card debt grew for eight consecutive years, reaching a record high of $829 million in 2019, according to Experian data. While there was a decline in credit card debt in 2020 due to the pandemic, it remains an immense obstacle in restoring your financial health.
Start by making a list of all your credit card accounts. In the first month, make sure to adjust your expenses such that you can pay the minimum dues on all your accounts. In the coming months, you should try to put aside as much money as possible to pay off credit cards, starting with the one having the highest interest rate.
You can also transfer the debt from multiple credit cards to one account. It allows you to pay off your debt gradually. You can also reach out to your bank or credit card company to create a flexible repayment plan.
Some of the leading Florida financial advisors can also help you plan your credit card debt repayment. Whatever plan you come up with, make sure to follow it through until your debt is cleared.
- Start Investing Early
Once you have a surplus net worth, you can start planning for your future. You should start investing as early as possible. Most young people put off their investment plans because they don’t have enough money or have too many family responsibilities. However, the sooner you start investing, the easier it will be to meet your financial goals in the coming years.
The most significant advantage is that you can invest small amounts. For example, if you start investing $400 every month at the age of 25, you will have saved $168,000 by the time you are 60. However, you will need to start saving $700 a month at the age of 40 if you want to put aside $168,000 by the time you are 60.
With compounding investments, you can also earn better returns if you start investing early. Furthermore, you can reinvest any profit or return on your matured investments, which will help improve your financial health in the long run.
Of course, you will need to consider market fluctuations, taxes, and several other factors when investing. That’s why, for systematic investments, you should consult professional and experienced Florida financial advisors. They can help you plan for your retirement, kid’s education, and asset management, among others.
As you can see, it’s always a good time to start improving your financial health. Whether or not you have a net surplus, taking these four steps will help you put your wealth planning in motion. Remember, the sooner you take control of your personal finances, the better. Have you started planning for your future yet? How do you plan to start? Feel free to tell us in the comments section.