Career Money

This is a guest post by Prashant Kumar 

Many of us don’t learn financial literacy as children. If you didn’t, by the time you’re an adult, taking control of your finances can seem impossible. Especially if you’re faced with high debt, it can be difficult to know where to begin. Here are ten steps to take control of your finances and achieve financial freedom.

1. Set Financial Goals

The initial step in regaining control of your finances is always to set goals. This can be anything from saving for a dream vacation to buying your first home. Be realistic about your goals and consider the timeline and the amount you need to save to achieve them. Setting goals gives you something to work toward and a clear path to follow.

2. Track Your Spending

The next step is to keep track of your expenses. You must know where your money goes each month and in what amounts. You can create a budget with a budgeting app, a spreadsheet, or pen and paper. This will help you to identify areas where you can cut back or areas where you are overspending.

3. Create a Budget

Once you’ve tracked your spending, the next step is to create a budget. This should include all your income and expenses, including any debt you may have. Include categories for saving and investing. Your budget should be realistic and you can adjust it as needed to ensure that you are spending within your means.

4. Automate Payments

Automating your payments is a great way to stay on track with your budget. Setting up auto-pay for all your bills, which can be easily done online, will ensure you never miss a payment. You can also have your paychecks automatically deposited in your savings account. This can help you save without having to consciously think about it.

5. Pay Yourself First

Make sure that you’re saving a portion of your income each month. Many people use the 50-30-20 rule: at least 20% of your income should go toward savings, another 50% toward necessities, and the last 30% toward discretionary spending. This will help you to have a cushion of money in case of an emergency or to save up for something big, like a down payment on a house.

6. Reduce Your Debt

If you have any debt, especially high-interest debt like credit cards, make it a priority to pay it down as quickly as possible. Always pay the minimum payments on your accounts and then use any extra money to pay the highest interest-rate debt first.

7. Increase Your Income

Besides budgeting, financial freedom starts with making more money. If you feel underpaid, ask for a raise at your current job. Many companies are willing to negotiate salaries, so don’t be scared to ask for what you think you deserve. Alternatively, maybe you have skills or talents that you can use to make extra cash on the side, such as tutoring, dog walking, or freelance web design. Get creative; maybe you can turn a hobby you’re passionate about into an income stream.

8. Have an Emergency Fund

An emergency fund is necessary when the unexpected occurs, whether a health crisis or a job loss. This should be a separate account from your regular day-to-day checking or savings account, one you can access quickly and covers at least three to six months of your living expenses.

9. Invest Wisely Using Tax-Efficient Strategies

If you’re investing, make sure to do your research and find investments that fit your risk tolerance and financial goals, and always diversify your investments to reduce your risk. The best way to invest for retirement is by setting up an individual retirement account (IRA). A Roth IRA is an account that grows tax-free as long as you don’t withdraw the money before age 59 1/2. You can contribute as much as $6,500 a year if you’re under 50 or $7,000 if you’re 50 or over.

10. Put Idle Cash to Work

Finally, after taking all the steps above, you might still have spare cash if you are unsure what to do. Make it work if you’re wondering what to do with idle cash. Consider investing in an index fund, such as one that tracks the S&P 500. Or open a high-yield savings account while interest rates are high. These safe, low-risk investments can help you put your money to work over time, and you’ll reap the rewards later.

Taking control of your finances often isn’t easy or quick, especially if you have debt, but it’s essential. You can begin your journey toward financial freedom by taking some of the above steps. Stay disciplined and focused on your goals; you have already achieved half the battle.


About the Guest Post Author:

Prashant Kumar is the Founder and CEO of Payference. After two decades of leading global teams, he decided it was time to make optimized cash management available to organizations that wanted the same benefits without paying for all the extras they didn’t need. If you’re looking for what to do with idle cash, see why Payference is the preference of finance teams looking for uncomplicated cash control.