Your finances are a deeply personal thing, but that doesn't mean you're an expert. After all, few people learn the fundamentals of running a household in school.
This leaves most of us managing money with an ad-hoc approach, but evidence shows you need a consistent and intentional plan to make the most of your finances. This is just the first of many hard truths you’ll learn about finances today. Keep scrolling for three more.
1. An Emergency Fund is Non-Negotiable
An emergency fund consists of cash reserved expressly for unexpected expenses. Usually, you keep these savings in an account that won’t penalize you for dipping into them at a moment’s notice.
That means avoiding accounts that require a minimum balance. After all, you don’t want to get hit by fees for tapping your fund.
When it comes to their financial importance, your emergency fund is right up there with paying rent, utilities, and groceries, so pay into this fund as soon as payday arrives.
Don’t be discouraged if you need to rebalance your budget once you add in savings. Cutting out the non-essentials can help you save more, and you’d be surprised by how comfortably you can live on a frugal budget.
2. Sometimes, Your Emergency Fund Will Fall Short
No one is immune to lousy financial luck. Neither is your emergency fund, and that’s okay.
If a slew of unexpected expenses hits you, you may end up draining these savings dry. Until you can fill it back up again, you’re vulnerable to any more unexpected emergencies that come your way.
Having zero savings isn’t ideal, but don’t be too hard on yourself if you ever find yourself in this tough position. In an unexpected emergency, you may find installment loans from online direct lenders that work as a stopgap until you build up savings again.
Take a look at the benefits of online loans from direct lenders before you take the plunge with an installment loan in an emergency. Researching your options may help you find the best loan for your needs.
3. Debt Won’t Disappear without a Plan
Carrying around some debt is normal, especially if you own your home or vehicle. But every bill that goes toward these debts takes a chunk of your paycheck away from fun spending and essential savings.
While making the minimum payments will keep your accounts in good standing, this strategy is one of the slowest ways to eliminate debt. To get out of debt faster, you need to have a plan targeting these bills.
Some financial experts suggest using the avalanche method, which prioritizes the bill with the highest interest rate. Knocking out this debt first may take some time to achieve, but it means you’ll pay less interest overall.
But for those who want a quick win, the snowball method may be a better option. This repayment style prioritizes the smallest bill you have so that you can pay off a bill quickly. The idea behind this method is that you’ll gain confidence and debt-paying momentum with each debt you strike from the record.
The truth can be hard to accept, but the sooner you do, the faster you’ll become a master of your finances. Having a plan can help cushion the blow, so find out what you need to do to budget for savings, handle unexpected emergencies, and tackle outstanding debt.