For some, the thought of dealing with their financial life sounds dreary and stressful. Maybe you assume that if you have enough money to pay for your necessities, it does not matter what you do with the rest of it. Maybe you have anxiety around finances because you grew up in a family that was always worried about them. Maybe you just feel like you do not really understand much about personal finance because no one ever taught you anything about it. These are all common situations, but there are several reasons that your life can be improved if you get a handle on the money in your life.
Paying Off Student Loans
If, like many people, you’re carrying student loans, it is in your best interest to pay them off sooner rather than later. Student loans can become overwhelming, particularly if the interest that you owe on them is mounting. If you find a way to pay them off quickly, it can free up money that you can use to buy a home or make other smart investments.
Having multiple student loans can also be difficult because you may have different terms for repayment and different due dates. One strategy for dealing with multiple balances is to consolidate them. Not only does this simplify payment for you, but you may end up with lower payments each month. You can review a guide that gives you more information on federal and private options for student loan consolidation.
Dealing with Emergencies
An emergency fund is money that you have tucked away in a form that you can easily liquidate when something unexpected happens, such as your dog needing emergency surgery, your spouse losing their job, or your home’s HVAC system needing an overhaul. While even a few hundred dollars can protect you from many of the consequences that come from not having anything put away at all, ideally, your emergency fund should eventually grow to cover at least three to six months of your basic expenses.
Exactly how much you need to have in it will vary based on several factors, including your responsibilities, your appetite for risk and the security of your income. However, starting to save up today will mean that when future problems arise, you can focus on the problems themselves without worrying too much about how it will hurt you financially.
Peace of Mind
Knowing you have enough to get to the end of the month and knowing what you are spending and on what can give you peace of mind. You never have to worry about whether you will have enough money to pay a particular bill. When something you want to do comes along, you can say yes with confidence, knowing exactly how much you have set aside for fun. Even if you are someone who habitually avoids thinking about money, you may be surprised at how much better you feel when you are on top of your finances.
Smarter personal finance can also put you in touch with negative or harmful ideas you have about money that have been hurting you financially. Money issues can be deeply bound up with emotion for many people. In addition, it can be a positive for your relationship when you and your partner are able to communicate effectively about money. Even if you are not on the same page as savers or spenders, understanding yourselves and one another can help reduce conflict.
From Security to Independence
One of the best reasons to stay on top of your personal finance is because it can allow you to take a journey from insecurity to security to independence. The difference in security and independence is that the former is about having confidence that you have enough to pay for your lifestyle while the latter means being able to live off your investments or other passive income and only work when you want to.
This may sound like a pipe dream, but it is achievable for many people. You can start investing with your employer sponsored retirement account, a few hundred dollars, and an online brokerage account, or by purchasing a home. Understanding how money you put away now can compound in value over the years ahead will give you a better sense of how powerful this kind of smart personal financial management can be.