Money isn’t the most comfortable of subjects for households at present, what with there being much less of it around than in years past. As the cost-of-living crisis continues unabated, money management has gotten much harder – and is much harder for newly-independent adults than it once was. As someone who might have just started getting a little more money in than before, you might be wondering how best to allocate your disposable income (that is, the money left after necessary costs). Here are three essential ways to think about your money.
1 – Paying Off Debt
The cost of living in Arizona is relatively affordable, but it is still important to be mindful of your finances and make an effort to pay off any debt you may have. This is especially true for shorter-term debts such as credit cards or bank loans, with high-interest payday loans being absolutely the most important to address immediately. Longer-term debt burdens like a mortgage are less important, at least if minimum repayment terms are being met – but making movements towards faster repayment can help significantly with your later life goals. If you are in a position where you have debt of (practically) any kind, your priority should be to pay off that debt where possible. This will free up your income and allow you to save for the future, invest in your career, or simply have more financial peace of mind.
Paying off your debt is of crucial importance for a couple of key reasons. For one, having or failing to repay debt can influence your credit score, in turn making it harder for you to borrow when you might need to in the future. For another, having debt can work against other financial efforts elsewhere, as interest on borrowing is often higher than interest on savings. Simply put, the sooner you clear debt, the sooner you can save money properly and enjoy your income. As such, consider putting extra money towards debt first.
2 – Saving
We’ve made mention of saving already, but here we will cover this in a little more detail – and explain why it might be a shrewder move than to spend. The instinct when you realise you’re a little more in the black than your otherwise thought can be to treat yourself, and you absolutely should do this. Indeed, we’ll be getting to this shortly! But there are some milestones you might want to hit elsewhere, if not for later life then for peace of mind in the medium term.
With regard to the long term, even a small amount of money placed away now can be transformative later on. Setting up a regular payment of some extra cash into bond can protect it against inflation, and give you a little nest egg to lighten future financial burdens; a more comprehensive savings strategy could dramatically improve your retirement quality of life, or help you save towards a big purchase like a first car or home. In the shorter term, saving up an emergency fund is vital for peace of mind, ensuring unexpected costs do not derail your plans.
3 – Spend!
Of course, what is money if not for spending. It can be easy getting bogged down in the dry and sensible, but if you have the above somewhat in hand, you can allow yourself to enjoy some of your hard-earned – in moderation, of course. Spending on yourself should not mean spending wilfully! Instead, think about the things you’d like to buy, and give yourself a month to see if you still want them. This can help you separate impulse purchases from those you’ll genuinely utilise or cherish.
