With a few quick tips, even you can tackle the scary parts of budgeting, investing, managing debt, and filing taxes.
Money can be a cause of financial fears for many of us, whether it is because we think we do not have enough of it, or because when we do have money we do not know how best to manage it. But the fears associated with managing money can disappear quickly if you begin to address these issues one small piece at a time.
[Read: When We Learn Financial Lessons the Hard Way]
The First Step: Taking a Quiz
This may seem a little silly perhaps, or at the least like a strange place to start. But if managing your money causes you anxiety or fear, a good way to begin to tackle that is to figure out exactly where your fears lie. There are questionnaires or quizzes which will help you to pinpoint where your weaknesses may be when it comes to managing your finances. Look around and you can find a questionnaire with Vanguard or LearnVest, or possibly with your own banking establishment.
This will help highlight what is called your risk tolerance – basically how much risk you are comfortable living with – and can shed light on what your investment style could be. Information like this can help you to decide how to allocate your assets and funds.
(Don’t think you are the first person to be nervous about investing! Confusion is the jumping off point for educating yourself and eventually knowing all you need in order to make wise investments and manage your money well.)
The Second Step: Knowing the Difference Between Good and Bad Debt
You did not know there are good kinds of debt in addition to the bad? When you come to understand the difference you will be able to be confident in deciding when it is a good idea to borrow money, and when it is not.
- Good Debt: Good debt is debt that will eventually pay you back. For example a home mortgage can be good debt if you eventually sell the property for more than you paid for it. Student loans can be good debt if the education you receive helps you to earn more money than you otherwise would without it. What it comes down to is borrowing money that will appreciate in value.
- Bad Debt: Bad debt is essentially spending more money than you earn. When you live beyond your means the value of the money ‘borrowed’ is not appreciating. This is commonly understood to be the worst sort of debt.
Whenever you borrow money to pay for something which loses value over time that is bad debt. For instance if you take out a loan to buy a car, and the car immediately starts to depreciate, when you sell it back to a dealer or to an individual, you will definitely be making less on the sell back than what you initially paid for the car.
[Read: Good Debt vs. Bad Debt]
The Third Step: Writing a Will
Everyone eventually needs a will, but the process does not have to be as scary as it may sound, and it does not have to be very expensive.
To get started you can:
- Call the local bar association: You can usually find free or cheap help in your area if you go through the American Bar Association’s website and look for local help in your state. Some local bar associations can also refer you to a lawyer who will do a free or low cost half hour consultation in which you can quickly explain the situation and ask for advice.
- DIY: Do it yourself may seem like a daunting option, but there are software options out there which can help you to write a will by yourself. These options can be found online with a quick search, or you can check your local library for books on the topic. It is up to your personal preference.
You may also want to check on whether or not it is wise to get a trust depending on the worth of your estate. Advice on this can be found in many of the same places as information on writing a will.
The Fourth Step: Minimize Your Tax Bill
By looking around just a little you can find tax breaks and deductions available to you. If you need advice or assistance in filing for your returns, the time to act is now. It is not wise to wait for the grand rush come spring time, when number crunchers and accountants are at their busiest. Finding a trustworthy CPA in the slow season is a good idea.
The Fifth Step: Keep Track of Your Expenses
For some people, probably more than would like to admit it, budgeting can be a scary concept. But you can ease yourself into it initially by simply watching where your money goes throughout the month. There are different ways to track this. You can use free online budgeting software. Or if you trust yourself enough you can do it simply by opening up a spreadsheet, which requires perfect saving of your receipts, checkbook records, and credit card payments.
[Read: Ways to Protect Yourself from Financial Disaster]
What is most important at the end of the day is to try out these different beginner options that will eventually have you monitoring your finances well and investing intelligently. Just try whatever works best for you and learn from the mistakes you will make. Eventually you will get it.
Watch this video to learn a little more about starting out budgeting: