What Are the Best Practices for Building Your Finances?

What Are Best Practices in Finance?

If you are looking to grow your finances and make your money work for you, you’ve come to the right place! Sadly, only 57% of U.S. adults are financially literate. Becoming financially literate, and learning about best practices in finance is one of the most actionable steps that individuals can take to help build their finances and overall wealth.

Incorporating financial best practices into your life does not need to be difficult! In fact, many of these steps can be implemented quickly into your daily routine. If you are curious about best practices in finance, consider the following advice:

• Explore Tax-Advantaged Accounts: Capitalizing on tax-advantaged accounts is one of the simplest ways to make your money work for you. Particularly if you are saving for retirement, ensure that your money is growing. Check and see if your employer offers a 401(k) account. With a 401(k), you contribute part of your paycheck pre-tax to a retirement account. Some employers will even match a certain amount of your investment. In addition, check into IRA accounts, Health Savings Accounts (HSAs), and Education accounts such as 529 accounts. Expenses such as saving for retirement, healthcare costs, and education are a necessary part of life, so it is worthwhile to explore tax-advantaged ways to make this happen!
• Invest Wisely: Pay special attention to where you invest your money. Ensure that any financial advisor that you work with is reputable and trustworthy. It might be a good idea to follow several investment blogs or listen to investment podcasts to ensure you have up-to-date information that can help you make the most informed investment decisions.
• Take Advantage of Compound Interest: Particularly if you are young, you have time on your side. Even small investments can grow exponentially over time with compound interest. Ensure that you contribute regularly to these accounts!
• Make Smart Lifestyle Decisions: The tale as old as time advice to “not spend more than you make” is actually quite solid! Ensure that you have a budget and a good understanding of how much money you have going out and coming in each month. You should regularly review your budget, and make sure you are differentiating between “wants” and “needs.”

If you are looking to follow best financial practices, education, and dedication are key. It is important to ensure that you continue to update, research, and educate yourself on the economy and state of your financial portfolio. In addition, once you put a plan in place, it is important that you stick to this plan!

How Should I Structure My Finances?

With these best financial practices in mind, it is equally important to ensure that you are properly structuring your finances. When you structure your finances, you are reviewing and balancing your money so that you have an optimal mix of debt and equity. This also encompasses good organization with financial documents that can help safeguard you down the road.

The first step in structuring your finances is ensuring that you have a good understanding of your current financial situation. While budgeting is a key aspect of financial best practices, you cannot properly budget if you do not have an understanding of how much disposable income you have available each month.

Some good tips for structuring your finances include:

1. Have an accurate list of all of your accounts
2. Track your income and your expenses
3. Establish short-term and long-term financial goals. Regularly re-evaluate these goals!
4. Plan for taxes
5. Establish an emergency fund for major life events
6. Safeguard your financial documents! Have backup information of all electronic documents.

When assessing your funds and planning for a budget, there are many budgeting tactics that you can follow. A successful budgeting rule is the 50/30/20 rule.

What is the 50/30/20 Rule?

The 50/30/20 rule is a popular budgeting strategy. With this rule, individuals divide their monthly income (after taxes) into the following categories:

1. Needs: 50% of your income is dedicated to life necessities such as food, rent/mortgage payments, utilities, and childcare. These are non-negotiable expenses that are necessary for individuals to live, work and go about their day-to-day lives.
2. Wants: 30% of income goes towards your entertainment budget. This can include expenses such as dining out, travel, shopping, and self-care. While “wants” may seem like a frivolous category to include in your budget, studies show that including an entertainment category in your budget allows individuals to stay on track with their budget.
3. Savings: Experts recommend that you set aside 20% of your income to go towards savings and your emergency fund. If you are in a situation where you are trying to save while paying off debt this can be a delicate dance. In general, it is recommended that while you prioritize your debt, you still try to save a bit each month. The accumulation of an emergency fund, no matter how small, can help prevent you from going further into debt should an emergency strike. If you need to consolidate debt or cover expenses without an emergency fund, contact LoanMart about options that might be available through your current assets and equity.

How do I Build My Finances?

While understanding how to manage and structure your finances is incredibly important, fully comprehending how to build and grow your finances is equally vital. Building your finances and growing your wealth is the way to lay a solid financial groundwork for you and your family.

Interestingly, the tips and tricks to help structure your finances and maintain financial best practices will also naturally help to increase your wealth. Setting clear financial goals and creating and sticking to a budget are considered best practices partly because they can lead to helping you grow your money.

If you are looking to continue to build your finances, you may also want to consider increasing your income. Over half of Americans – 54% – reported having a side hustle. Increasing your income and dedicating those funds either straight to your savings or to help pay down debt can help you reach your financial goals at an expedited speed. The good news is that you can find a way to utilize skills that you already have to make money. Additionally, many side hustles are remote, which means individuals can make their own hours and develop a schedule that works best for their lives. If you feel as though you don’t have a special skill set, consider taking a job at a store that you shop at often. Most retail companies offer an employee discount, so you can earn extra money while saving on purchases!

Building and improving your personal finances is a worthwhile goal. Through education, dedication and a positive attitude, you will find you can best position yourself to thrive financially!