If you can learn to make smart money moves, you don’t have to feel threatened when it comes to your finances. You see, financial security and stability are not just about the amount of money that you have. Or the lack of debt that you owe. It’s also about your attitude. If you know how to use your money wisely, you won’t have to worry about what goes on around you. Even if you’re going through a financially abundant time or an economic crisis you’ll know what to do. You’ll feel confident in your ability to get past it because you know how to make the right decisions about your money.
This doesn’t mean you don’t have any debts. While debt freedom is a good sign of a healthy financial situation, it doesn’t mean you can’t achieve it just because you have debts. As long as your debts are under control, you’re safe. Take a look at the Millennials. According to reports, the average Millennial has around $232,372 worth of debts ($27,251 excluding mortgage debts). While this may seem like a huge amount, most of them have their payment plans under control.
Do you know what that means? It means these Millennials are making smart money moves. They’re not shying away from debt because they know that it can be used to positively affect their finances. But they make sure that they maintain full control over it.
Of course, that doesn’t mean they should keep themselves in debt. It’s still a good idea to get rid of their credit obligations. And their ability to be smart with their financial moves will make that possible.
Smart money moves for Millennials
There are several smart money moves that Millennials can use to improve their financial situation. Some of these can specifically help you put your debts under control. Or remain debt-free if that’s what you want to achieve.
Create a financial goal
The first move that you should be doing is to create a financial goal. This is one of the best ways to keep your spending decisions in check. When you have a goal, it usually becomes your priority. If you have to make a spending decision, you usually have to check if it’s aligned with your financial goal.
For instance, you have set a goal to save up for the downpayment of your home. Every time you go out on a spending errand, you’ll always think twice about what you’re spending on. If you see the new iPhone and feel the urge to buy it even if you don’t need it, you won’t do it. You know that you’re saving for something more important.
That’s the benefit of having a financial goal. It motivates you to make smart money moves through the reward that you’ll get once you reach your financial goal successfully. This is why after you reach a goal, you have to set another. It’ll keep your financial decisions in check.
Monitor your cash flow
Monitoring the ins and outs of your cash flow is another one of the smart money moves that Millennials should look into. When you know how your money moves each month, you will feel more in control of your finances. Again, this will help you make the right decisions especially when it comes to your spending. For instance, if you know that you have to pay a certain amount each month, you wouldn’t spend it on impulse buys. Or if you have an upcoming vacation that you need to save up for, you’ll know how to rearrange your cash flow so you can make it happen.
The great thing about this is that it protects your priority expenses. Sometimes, if you’re not monitoring your cash flow, you unknowingly spend your money on other things. When the time comes for your priority expenses to be met, you’re forced to rely on debt to pay for it. If you are aware of your cash flow, this won’t have to happen.
Maintain an emergency fund
Among the smart money moves, this is the one that will really save you a lot of headaches in the future. When you have an emergency fund, you will feel very secure about your finances. After all, life is very uncertain. You never know what will happen. Accidents happen. Layoffs happen. There are so many things that can change your life in one instant. You have to prepare for it through your emergency fund. No matter what you are going through, you need to always have this on the side. So while you have the extra money, save up for this. Maintain it.
The last one is very important. Sometimes, people see the huge amount in their emergency fund and use it for something else – even if it’s not an emergency. They think that they have time to return the money. Don’t do that. Don’t use it unless it’s a real emergency. You’ll never know when an emergency will strike. Without enough emergency funds, you might end up borrowing money just to get by.
Pay down debt
Finally, to remain free from the clutches of debt, you need to pay down whatever balance you still owe. This is how you can keep using debt without it becoming a threat to your finances. Unless you have your debt situation under control, don’t borrow more. That’s a really great habit to have.
Use the credit utilization rate as your basis. The ideal rate is 30% of your credit limit. So if you’re limit is $10,000, keep your balance $3,000 or lower. Pay it down first before you borrow more.
Of the smart money moves, this is the one that’ll really help you control your credit use.
Foolish money moves that can compromise your finances
If there are financial moves that will help you stay away from the harmful effects of debt, there are also those that’ll harm it.
Here are three that you should avoid.
Spending more than you earn
This is the quickest way for you to make your debt situation worse. When you spend more than what you earn, what do you think is used to pay for the difference? Debt! So if you want to keep debt under control, you have to keep your expenses lower than your income. It’s not even enough that you live within your means. If you want to improve your financial situation, live below your means. You need to have extra money at the end of the month.
Ignoring your credit utilization rate
Earlier in this article, it was mentioned that you should use your credit utilization rate as the basis for your debt levels. So ignoring it, obviously, will put your debt situation in danger. Keep your eye on your balance. This is not hard to do. But you have to be consistent when you do it.
Failing to save more
A survey revealed that because of recent events, Millennials have increased their savings – specifically when it comes to their retirement funds. If you haven’t done the same, it’s time to get started. Don’t wait for a crisis to do this. Be responsible enough to save more money so you don’t have to struggle in the future. Be prepared so you don’t have to feel stressed in times of emergencies.