Understanding personal finances can be tough, but this knowledge is absolutely essential if you want to decrease your debt, start saving, and maximize your earnings. But where do you start if you know nothing about personal finance? Here are the best tips for beginners:
1) Start a personal pension
If you’re relying solely on your regular workplace pension, you may struggle to retire later in life. Having a good retirement requires plenty of planning earlier on, as you’ll need to start saving decades in advance if you want to build up a healthy amount of money.
Starting a personal pension is the best way to gradually start saving for retirement while you’re still a young worker. With a Wealthify pension, you can set up a savings plan and use the handy Pension Calculator to see how much you could save with your current contributions. Start saving now to retire as comfortably and as early as possible!
2) Create a budget
Having long-term goals is fantastic, but you’ll also need to focus on your current finances. You won’t be able to create a financial plan at all if you have no idea what your spending habits currently are, so go through your bank statements and write down exactly what you’re spending and earning each month. Dividing your expenses into categories can show you the problem areas you need to work on, helping you create a realistic budget for the future.
3) Open a savings account
Only having one bank account means that all of your savings are mixed up with weekly expenses. This is a bad idea because you won’t be able to accurately track how much you’re saving each month, or you may even accidentally spend your savings on frivolous purchases.
If you want to get serious about saving and improving your personal finances, you need to open a separate savings account. This will help you track your savings and set up regular payments each month before you spend your savings on unnecessary things.
4) Improve credit score
Having a good credit score is essential if you want to take out a business loan or a mortgage. Once your personal finances are more stable, you can start thinking about improving your credit score. This can involve paying off credit card debt, not maxing out your credit card and only applying for new credit accounts when necessary.
5) Increase earnings
Finally, there may come a time when you can no longer maximize the earnings you currently have. If you’ve reached your savings limit but you would ideally need more money for your goals, then your only option is to increase the amount you earn each month. In this case, you may need to apply for a new job, ask for a raise or get new qualifications to increase your earning potential.
Personal finances may seem like a confusing topic at first, but anyone can do their own research and create a sensible financial plan. If you’re a complete beginner, start with these simple steps if you want to reduce debt and maximize earnings.