Planning your finances must be on the top of your “To-Do” list at all times, if you wish to enjoy financial stability not just momentarily but for the years to come. Let us find out few ways in which you can make certain changes, if you have not already, and improve on a few to achieve the same.
Steps for better financial sanity
Check out these measures that you can take-
- Setting financial goals
If you have a full-time job, it is easier to plan your finances because you have a fixed amount of incoming cashflow. And if you are working part-time make a note of how much you are earning every month.
Once you have done that, calculate your expenses. Preferably, your earnings must be more than what you are spending. As a rule of thumb, adhere to this. Restrict cashflow and make it a point that you earn more than you spend. By doing so, you will be able to stay away from credit and debt.
- Set up a credit profile
If you are financially healthy and know how to manage your finances, it reflects in your credit report and credit score. Just because you can pay off credit does not necessarily mean you have to borrow money. However, if you have to take out a loan, make sure you are responsible with the proceeds of the loan and pay-off when you are supposed to.
Evaluating credit terms assures you that in future you do not have to opt for credit repair or get into a vicious cycle of debt by having to take out a loan to pay off another. Read between the lines when you take out a loan and go through the terms, conditions, and clause that govern the loan account.
- Track your Debt-to-Income Ratio
Taking out a loan or having more than one debt account is not bad provided you know how not to default on your payment. Moreover, if you can show lines of credit in good condition, it assures lenders that you can handle finances well and that you are responsible with other people’s money.
If you have a good credit score, lenders will be ready to deal with you. Not only that you are also eligible to get insurance coverage at better rates and conditions. If you want to opt for mortgage, you will be able to enjoy better terms too. Ideally, the debt-to-income ratio must be around 25% or lower is better.
- Choose debt accounts wisely
Having established a financial goal and knowing how much you can afford as disposable cash; you can opt for debt. Rate of interest is an important aspect that you must consider. Stay away from loan accounts that attract very high rates of interest, Annual Percentage Rate (APR), and fees, late payments and overdraft charges.
If you boast of a good credit score, never settle for poor credit terms as per conditions laid down by lenders. Remember, you deserve better terms and conditions.
- Plastic cards can be financially hazardous
It is best to use a debit card. This is because you know how much cash you have in your bank account and that you have to stay within limits so that you do not overspend. But credit cards can cause you to get into a vicious cycle of debt and go on a spending thrift.
If possible, keep plastic cards only for emergency purpose and when you do not want to carry cash with you. Credit card means you are using the money of the credit card issuing bank and sooner or later you have to return it. So, limit use of these credit cards.
As far as investing in financial instruments are concerned, study the market conditions well before you put in your hard-earned cash in any instrument. Build your investment portfolio taking all the pros and cons into account.