Financial literacy is key for managing one’s money and includes budgeting, tracking spending, and paying down debt or credit balances. For beginners in digital finance, the following advice provides some essential tools and tips on managing digital finances effectively:
Learning more about money may seem intimidating, but it’s easier than ever to expand your knowledge of current trends and tools available on the internet. From free podcasts to financial firm websites, there is an array of resources that can help.
1. Set Up a Budget
Budgeting is an essential tool to help you meet both income and savings goals. Setting spending limits that are reasonable for your income level and resources available to increase it can help prevent surprises in spending habits and savings levels.
To create a budget, begin by listing all sources of monthly income and expenses—this may include salary, investment income, alimony, or any other sources. Next, divide expenses into necessary and discretionary spending categories. Finally, review your budget every month so as to identify any spending leaks or potential savings opportunities.
2. Create a Savings Account
Savings accounts allow you to earn interest on your money over time and provide a safe way to store savings for emergencies or long-term goals. When creating an emergency fund, aim for enough savings to cover three to six months’ living expenses—this will protect against unexpected costs and give you peace of mind.
Savings accounts can also help you reach long-term goals like buying a home or taking an overseas vacation. Set up automatic transfers so that saving doesn’t become a chore—then enjoy saving without even thinking about it!
3. Automate Your Savings
For the purpose of tracking spending more closely, regularly reviewing bank or credit card accounts online or off can help keep spending under control. Furthermore, downloading an expense tracking app could prove useful as well. Automated transfers can help you increase your savings without exerting additional effort on your part. For example, you could designate a specific amount from each paycheck to be transferred directly into an investment account during each pay period.
Use an automated investment or financial planning robo-advisor, which offers automated investment or financial planning recommendations based on algorithms. No matter which route you take, keep an eye on your money and be willing to adjust your savings plan if needed.
5. Track Your Spending
Tracking your spending is a key element of financial management. Digital tools simplify the process of monitoring spending and achieving savings objectives. Start by reviewing your bank and credit card statements to identify expenses, then categorize these into essential and discretionary purchases so you know exactly where you’re spending each month.
Mint and YNAB provide tools that make budgeting easy by linking bank accounts and tracking spending automatically, while Digit and Qapital analyze your spending to identify where savings could be created by moving small amounts automatically into savings accounts on your behalf.
6. Invest in Stocks
Stocks are shares of ownership in a company, available for purchase through brokerage accounts. Stocks can help increase long-term wealth but could decrease it quickly should share prices decline. Beginner investors may wish to opt for individual stocks or more diversified funds, such as mutual funds and ETFs, that provide diversified exposure across many companies.
Before beginning investing, create a realistic budget that includes after-tax income, expenses, debt levels, and investment goals. Furthermore, setting aside an emergency fund may prevent having to sell investments during a financial downturn.
7. Invest in Cryptocurrencies
Cryptocurrencies have become an increasingly popular investment option, yet remain highly speculative and more volatile than more conventional investments. Thus, novice investors must complete thorough research before making their decision. One way of doing so is by visiting a cryptocurrency’s website and reading independent articles; another approach would be examining the technology behind it.
As part of your overall investment strategy, diversifying across various forms of cryptocurrency will reduce risk and protect you from major losses should one suddenly decline in price. Dollar cost averaging is also an effective way to manage volatility and enhance long-term returns.
8. Pay Your Bills
Bill-paying is an integral component of financial management. By taking advantage of online bill-payment services, payments can be quickly and conveniently processed; it’s also important to weigh up each payment method prior to selecting one that best meets your needs.
Prioritize your bills by prioritizing essential expenses like rent/mortgage payments, utilities payments, car payments, insurance premiums, and car loan payments. Review all bills regularly to make sure that you’re not overpaying, and use an online bill-negotiation service like Truebill to negotiate down subscription costs and save money on unwanted subscriptions.
9. Manage Your Debt
Debt can be an invaluable way of reaching your financial goals, but it must be managed responsibly to remain effective. Creating a budget and setting financial goals are the best ways to manage debt effectively. Debt repayment strategies like the debt snowball method or debt avalanche method offer another approach for dealing with debts, prioritizing them according to interest rates—paying off those with the lowest balance first.
If you can’t pay your debts, contact your creditors before they send your accounts to collections. They may offer to work out an arrangement with you or help create a payment plan.