Managing your finances can be a challenge at any given age or stage of life one is in. Following are 7 things every woman should know about personal finances.
Understanding, you may face different financial struggles throughout the course of your life, you can overcome them by addressing them and protect your money and credit score.
Whether you are single, married, or are preparing for retirement, every woman should be familiar with the dos and don’ts of personal finances.
1. It’s Never Too Early to Practice Budgeting
The practice of creating and following a budget should be followed by everyone. This includes career women, as well as stay-at-home moms. Effective budgeting can help you meet your financial goals while allowing you to indulge in luxuries every now and then.
Budgets can be broken down into three primary components:
Needs are essential expenses such as rent, groceries, and fuel, which can’t be skipped. Wants are non-essential purchases such as fancy coffee, vacations abroad, and gifts for friends. Savings are money that is set aside for emergencies or for retirement.
When you first create a budget, you will get a good idea of where all your money goes each month. You may even be surprised how little expenses can add up month after month. Reviewing your budget can help you cut down on unnecessary expenditures, pay off outstanding credit card debt, and get you on-track with accruing savings for retirement. This makes it a powerful tool that can help you reshape your finances.
2. Maintain an emergency fund
Many people use budgeting practices to create and maintain an emergency fund. As the name implies, this is a special portion of your savings that is meant exclusively for personal emergencies. This fund could be used to pay for unexpected hospital bills or car repairs to name a few.
It can be tricky avoiding giving into temptation and spending your funds on luxuries or vacation; however, you should remember that your emergency fund is the safety net that prevents you from falling into debt or becoming bankrupt.
3. Pay attention to your credit score
Few people realize the importance of maintaining a good credit score until it is too late. Your credit score signals your financial health to credit card companies and loan issuers.
Credit scores typically range between 300 and 850, with the average being 703 in the US. Scores below 580 to 669 can be considered fair, while scores of 670 to 739 are good. If you wish to apply for a loan, it is recommended that your credit score be at least 670.
If you apply for a loan with a poor credit score, your only options will be ones with high-interest rates and/or short payback periods. In addition to this, some loan requests may be outright rejected if your credit score is below 600. This can be limiting if you were planning to take out a business loan to start a business.
You can maintain a relatively good credit score by always paying your bills on time and keeping your debt to a minimum. Avoid using your credit card for purchases as it will drive up your credit utilization ratio.
4. Never stop looking for ways to increase your wealth
Many women stop their pursuit of greater wealth once they get married or become comfortable in life. This could lead to problems down the line, as you never know what your future needs will be.
Having kids or developing a sudden health problem could cause your finances to spiral out of control. For this reason, you should always strive to find ways to actively improve your financial standing.
So don’t be afraid to ask for a raise every year. Try starting a side business that provides a secondary source of income. Or invest in a diverse range of stocks, bonds or real estate. Anything that shakes things up and stops your income growth from stalling can help you in the future.
5. Remember to take a break
Building wealth can be a never-ending quest for some women. However, it is also important to remember to enjoy life while you are doing it. Saving up for your retirement is a smart goal, but you should allow yourself to indulge once in a while.
Go to the movies with your friends, have a meal at that fine-dining restaurant you’ve always wanted to check out or drive someplace warm and sandy for the weekend. The trick for indulging responsibly is to plan beforehand.
You should set some funds aside in your budget for occasional splurging. This should not be viewed as a waste of money, as allowing yourself to indulge every now and then relieves the urge to spend irresponsibly. This reduces your chances of going on a spending spree that puts you in the hole financially.
6. Debt doesn’t have to be bad
Earlier we mentioned that having significant debt can reduce your credit score. However, this doesn’t mean that all debt is inherently bad, or that it should be avoided at all costs. If you are taking out a loan for the purpose of increasing your net wealth in the future, your debt could be considered “good”. This could be the case if you take out a loan to pay for college or to start a business.
Debt only becomes bad when it gets out of control and can no longer be managed. This happens when you are unable to keep up with debt payments and start accruing interest on your debt amount.
In an ideal world, everyone would be debt-free, however, this is becoming increasingly difficult for women in the 21st century. So if you do take out a loan, remember to look over the terms and conditions to ensure that you can handle the repayment.
7. Never give up
Life has a tendency to throw curveballs at you at every age. If some financial mishap does occur, hopefully being aware of things every woman should know about finances will help you give you the confidence to overcome the challenge.
You may consider checking out this post on financial freedom vs financial independence.
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