There are plenty of myths when it comes to handling the household finances. Unfortunately, though, what works for one may not work for the other, so each person has to do what is best for them. However you get there, if you can stay out of debt, create an emergency fund, reduce expenses, and have a nest egg saved up for the future you are doing the right thing when it comes to managing your finances. From there, there will be plenty of options going around about what is best, but when it comes to what works, each person is motivated by different things, so getting results could come in many different ways but end up in in good financial shape.
Pay Off Largest Debts First
Experts will tell you that paying off the largest balance with the highest interest first will make sense so you are not wasting money in interest payments every month, but that may not work the best for all. Sometimes by clearing out some of the small amounts you can see that zero balance and actually see progress. Although you are not putting a dent the higher balances, at least by getting rid of the small balances and seeing a light at the end of the tunnel you will be able to focus on making changes in your life where you can free up extra money to put towards the higher balances.
Finances Should be Kept Separate
I heard before that if finances are kept separate it’s because there is something to hide. That may not be entirely true, there could just be a need to hang on a little individualism when it comes to finances with your significant other, especially if you are still keeping separate when you are married. Money should be talked about on a regular basis especially to not only have a grasp on what the monthly necessary expenses are, but to also know each other’s spending habits and where any adjustments need to be made.
Should Rent vs. Buy
There are many that will argue that renting makes perfect financial sense because it gives you the freedom to pick up and go if you have a job change, want to try out a new city, especially if you are young and don’t want to be tied down to a mortgage. I guess it’s much like leasing a car, it doesn’t make sense to buy a car when it comes to repairs. The difference though is that after you finally pay off a car after a loan it’s worth practically nothing, where if you buy a home, the equity you build can go to pay for other things such as renovations, debt, wedding, etc., whereas renting doesn’t go anywhere, nor do you get any tax credits.
All Debt is Bad
This might be the same that say you should rent instead of buy, because you don’t want to go into debt. While yes, a mortgage is a huge debt, you build equity along the way. Sure, if you can get into a 15-year mortgage with a low interest rate it will minimize interest payments, but having a mortgage isn’t entirely a bad thing. What about student loans, is it bad to have gone to school and are now paying for it? Probably not, at least I hope not, as those loans seem to be never-ending.
Only One Credit Card is Necessary
If you can believe it, I’ve actually heard people say that they don’t even have a credit card, let alone one, so building up credit is probably the furthest from their mind. When you have a credit card you can develop a solid payment history and credit line with a lender. Having multiples can actually help your credit score even further by having more available credit. The most important piece is though, to cut up the cards but leave the account open. That way you can’t risk charging up the accounts but the accounts will still be open to keep up your credit score. Closing accounts can actually hurt your score if you have debt on other cards and the available credit is reduced.
A Budget Will Fix Reckless Spending
A budget is only as good as the person follow it. You can have a great budget but only you can fix any reckless spending that caused you to need a budget in the first place. You can have a budget all you want, but if you keep failing it every month it’s not doing any good, so some life changes will need to be made if you want to free up any extra money.