For many people, the concept of financial planning can be a little overwhelming. While you may want to jump straight into exploring apps and tools to start improving your financial health, it is crucial that you understand the basics. Here we’ll cover what you need to know to gain a solid financial footing. 

Establish a Budget

If there is one basic concept for financial health that you must employ, it is establishing a budget. According to Debt.com, 8 out of 10 Americans say they use a budget and with good reason. It is impossible to properly manage your finances if you don’t fully appreciate what you are spending and where your money is going.

Although it may seem daunting, you can set up a budget regardless of your income. You simply need to write down all of your essential expenses and deduct the total from your income. This will provide you with a figure for your disposable income that can be used for savings, investing, or even buying something non essential.

Despite research suggesting the majority of people are using a budget, the average household is carrying $8,398 in credit card debt alone. So, while it is great to write your budget down, you also need to ensure that you follow it. 

This means if you allocate $100 a week for groceries, you need to keep track of what you spend at the store and make sure that you don’t go over this figure. This will make you stop and think before you spend.

Cut Your Expenses

This goes hand in hand with budgeting, but you need to look at what you’re spending and decide if it is really necessary. As we touched on above, there are some expenses that are essential that include:

• Rent
• Utilities
• Food
• Transport
• Loan Repayments

These are all expenses that need to be paid each month to live. Although it may be possible to reduce these costs by shopping at cheaper grocery stores or sticking to a strict grocery list, by and large, the costs will be fairly fixed.

However, you can cut the costs of your non essential expenses. Go through your card statements and receipts to see what you’ve spent in the last month and where you could have saved money. Although it is unrealistic to expect not to spend any money on new clothes or eating out, you can curb this spending.

Clear Your Debt

According to research, only 23% of Americans carry no debt. Whether you have student loans, credit cards, or other forms of debt, it can create problems for a healthy financial future.

Debts will prevent you from qualifying for a homeowner loan or even upgrading your vehicle in the future, so it is crucial to develop a plan to clear your debt.

Once you have your budget established and have cut your unnecessary expenses, you should have a little extra money that can be put towards clearing your debts. Although it is still important to put some money aside as an emergency fund, it is worth taking a portion of this money and paying it off your debts.

Many people have multiple forms of debt, including:

• Credit cards
• Student loans
• Personal loans

In these cases, you should aim to pay off the debts that are costing you the most. So, if you have a $500 credit card balance with an APR of 20%, this should be a priority over a $5,000 personal loan that has an APR of 5%. Although the loan payment may be more each month, once you clear the credit card, you will have more money available to put towards paying off the loan.

Fortunately, there are lots of tools to help you monitor your expenses. Check out a Truebill review or explore the other apps that allow you to track your spending directly on your mobile device.

Save for the Future

Finally, regardless of your current income, you need to start thinking about the future. Saving for unexpected expenses, vacations, or even starting to plan for retirement will help you to achieve financial health, so you need to consider this in your budget.

If you are on a limited income, you may think that it is not possible to save, but even putting a little away each week can quickly start to add up. This will help you to avoid getting into more debt if there is an unexpected expense. Start a savings account and aim to put away a set amount with each paycheck; you may be surprised at how quickly the balance grows.

So Are You Ready to Master the Basics?

While these four financial basics may seem simple, they form the foundation of building a solid financial future. When you grasp the basics of budgeting, cutting expenses, clearing debt, and saving for the future, you can improve your financial situation and start looking towards more advanced financial planning.

A big thanks to Tomas, from DollarBreak for the guest post! DollarBreak is a team of Personal Finance experts. They set out on a mission, to find the best tips, tools, and resources, publish them in well-crafted informative blog posts and bring you clarity in small, but important everyday life financial decisions. Take a break and learn how to Master Your Money!